Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Money Supply - Essay Example

Comments (0) Cite this document
How can the fed affect the money supply by using the discount rate? Interest rates that are adjusted by the Fed, otherwise known as the Federal Reserve System are at times used as a means for money supply control…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94.8% of users find it useful
Money Supply
Read TextPreview

Extract of sample "Money Supply"

Money Supply Money Supply Question How can the fed affect the money supply by using the discount rate? Interest rates that are adjusted by the Fed, otherwise known as the Federal Reserve System are at times used as a means for money supply control. By lowering the discount rate, the Fed will decrease the money supply and vice versa. However, discount rates are used by the Fed for direct changes in the monetary policy rather than control the money supply. The discount rate is described as the interest rates charged on commercial banks borrow reserves by the Federal Reserve banks. Therefore, a decrease in discount rates will encourage borrowing by banks. This in turn increases the amount available in reserves of the banking system; this will automatically trigger a money supply increase. This is the same way an increase in the discount in the discount rate will have an opposite effect on the money supply. Question 2: Discuss the factors that led to deregulation of the U.S financial markets in the 1980s. Deregulation can be described as the process where there are adjustments made to the law. What this means is that financial institutions will have more freedom in the way that they compete. Deregulation, therefore, is the process where regulations are reduced or at times removed to increase the efficiency of markets. The reason behind deregulation is promotion of competition. It will result in low prices and a marketplace that is more effective. In the 1980s, japan was one of the highly regulated financial markets. However, there was an agreement between Japan and the U.S in 1984 to liberate the markets. The rapid deregulation helped to strengthen the Yen and sustained capital flows to the U.S economy. This prevented unwarranted weakening of the American dollar. The U.S also was the first to deregulate its financial sector. This was for attracting investors at a time when deficits of the U.S government were high. This was because of spending on the war in Vietnam. The U.S had also been weakened in its trade position as industries in Japan and Europe thrived. Question 3: What are the differences between M1 and M2? M1 is described as the official money supply for the American economy. If for example an individual is making a payment for buying a good or service, they will use two concepts. These concepts are the M1 paper currency or the checking account fund deposit. Almost a half of M1 comprises of paper currency. It is not only limited to paper currency but metal coins too issued by the federal government. Currency and metal coins held by non-bank public is categorized as M1. The checking accounts is run and maintained by the commercial banks. M2, on the other hand, is the medium-range monetary aggregate that is a combination of M1 and small denomination near monies in the short term in the U.S economy. Financial assets function directly as money or can easily turned into money are categorized here. Saving deposits, money market deposits, certificate of deposits and mutual funds of the money market added to M1 derive the M2. Question 4: What are the three functions of money, and why are they important? Money as a medium of exchange is probably money’s most vital function. As a medium of exchange, money facilitates transactions. The other option available apart from money is barter, acting as the medium of exchange. When money serves as a medium of exchange, it eliminates the wants problem of double coincidence associated with barter trade. This is because it is universally accepted regardless of the desire for the good or service. Money will function as a unit of account. This means it provides a common measure for the value of all goods and services that are exchanged. The value of any good or service is defined and known by its price. This will enable the purchaser and supplier to make decisions on quantity and quality of a good in a transaction. Money will also function as a store of value. Money has to be such that it keeps its value over time to act as a medium of exchange. It has to last for a long period and still hold its value intact. This makes it unique as opposed to other store of value like land. Furthermore, money is easily portable store of value and available in numerous denominations. Question 5: Explain how banks are financial intermediaries. What are reserves? What are excess reserves? Explain how the Fed can affect the quantity of excess reserves in the banking system. Financial institutions, in this case, commercial banks, accept deposits from the public. They will go a step further to make loans available to those in need of credit services. By doing this, banks act as the intermediaries between economy (savers) and borrowers (Deficit spending units) in the cash surplus units. As a financial intermediary, a bank facilitates borrowers to tap into a wealth pool of federally insured deposits. Reserves can be described as a required amount of money by the law so that a commercial bank is able to make loans or continue in its service offering business. This reserve is held by the Federal Reserve System. Excess reserves are the capital reserves that a financial institution or bank holds way over what the law requires. Standard reserve requirements set by the central banking authorities is used to measure excess reserve in the case of commercial banks. A set amount or required reserve sets the minimum liquid deposits. This minimum must always be at the bank as reserve. Bank’s excess reserves are held by the Fed and do not earn any interest. This means it becomes part of the money supply. This means that the Fed can continue printing lots of money and it will not result in lots of inflation. References Bade, R. & Michael, P. (2002), Foundations of Microeconomics, Boston, MA: Addison-Wesley McEachern, W.A. (2012), ECON Macro 3 (3rd ed.), Mason, OH: South-Western Read More
Cite this document
  • APA
  • MLA
(“Money Supply Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Retrieved from
(Money Supply Essay Example | Topics and Well Written Essays - 750 Words)
“Money Supply Essay Example | Topics and Well Written Essays - 750 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document


E-logistics and Supply Chain Management: Tesco

...1. Supply Chain management (SCM) involves integrating all the functions to maximize benefits and reduce costs. SCM includes the logistics flows, thecustomer order management, the production processes, and the information flows necessary to monitor all the activities at the supply chain nodes (Swensson, 2003). has adopted the expansive strategy by including non-food items in its list and ensures proper coordination between all its processes in the supply chain. Tesco uses the latest technology which enables to shop any time from anywhere through the use of handheld computers and WAP-based wireless phones, internet, pocket PCs or digital TV. They have also opened up Internet cafes in stores to facilitate the customers with poor...
6 Pages(1500 words)Assignment

Strategic Opportunities for E-commerce Enabled Supply Chains

Scaling the e-business in IT infrastructure is important because it reduces the cost and expenses to interact with the customers and suppliers. It also helps in maintaining and in management of the e-business. 

“As your environment begins to evolve, it is important to recognize the value of horizontally scaling your platforms and applications to support increased loads and service requirements. As the concurrency and complexity of your systems grow, the greater the need becomes to support policy-based routing, application and data caches, as well as load balancing hardware and software.” (Whitepaper; August 2001)

From very starting there was a need for those applications that can be used to c...
9 Pages(2250 words)Report

How Can CRM Strategies Improve Efficiency and Effectiveness in Supply Chain Networks to Enhance Competitive Advantage

... CRM and Supply Chains How can CRM strategies improve efficiency and effectiveness in supply chain networks to enhance competitive advantage? Provide real life example to support your case With globalisation and the growth of a shared market across the world, it is very important for all brands to have individual recognition and be accepted as a part of the local scene as much a small business would be (Harker and Esan, 2006). While this is often the target of marketing executives, it is often found that customers may have different relationships with brands and the strongest customer relationships survive even when if product quality goes down or even if the competition offers a better deal (Tenser, 2006). In essence, the relationship...
6 Pages(1500 words)Assignment

Money & Capital Markets

The subprime lending crisis rocked the U.S. economy in late 2006 and early 2007. Subprime lending refers to the loans which are provided to the borrowers having less than ideal credit histories. In other words, subprime lending is provided to persons who do not qualify for conventional credits or loans.

The subprime loans gave rise to inflated credit facilities, increased availability of infrastructure and more circulation of more currency in the economy. But this system also gave rise to unprecedented meltdown, liquidation of funds and resultant heavy losses of financial institutions due to non-payment of loans by the borrowers.

The main reasons for the crisis are more than one. They are the failure of the b...
10 Pages(2500 words)Assignment

American Airlines: Supply Chain Nightmare

For this reason, it is necessary that all business sectors are carefully reviewed – as often as possible – for the appropriateness of their structure and their daily needs; managers may fail to evaluate with accuracy their firm’s needs, a fact that can cause the failure of plans applied on the relevant organization (Hardless, 2005). On the other hand, the needs of various organizational departments are different; the methods used for the improvement of a firm’s activities should be flexible taking into consideration the characteristics of the specific organizational sector, its strengths/ weaknesses but also its role in the development of the firm’s activities. Boeing is a firm with a long presence in...
15 Pages(3750 words)Case Study

Relationship between Money Supply and Inflation in Saudi Arabia

Over the recent past, the effects of money supply, debt and inflation have become contentious issues for debate. Furthermore, frequent cautions concerning the risk of very large budgetary deficits aver that this would send up the upcoming state debt and capital rate as indicated by the rates (interests). As a nation, Saudi Arabia has a bi and enduring budgetary deficit over the past two decades and the government has been forced to go into the market so as to have loan access and to make up for the deficits. Given the impact of this on inflation and other economic variables, it's imperative and of great alarm for strategy architects (strategists) to understand how microeconomics has an effect on money supply, financial plan defici...
10 Pages(2500 words)Speech or Presentation

Money Supply Process

... to sketch out standards for the calculation of the amount of money in an economy. According to the IMF’s guidebook, money supply is calculated as the joint deposit liabilities of the banking system and the currency liabilities of the central bank. They are held by households, companies, non profit organizations and all public sector entities outside of the central government. In this authorized or standard illustration of money supply, there are 3 monetary aggregates defined; M0, M1 and M2. There are other less liquid financial assets, which suit the store of value condition and their incorporation allows for extensive measurements, for instance, M3 and M4 (The Measurement of Money Supply, n.d., p. 9-11). Table 1: Standard Measurements...
8 Pages(2000 words)Assignment

Supply Chain Management: Conceptual Supply Network

...Supply Chain Management Introduction A basic collective definition of supply chain are thrice some time more accordingly, these are the firm’s dual equipped transitional informing, capital, assistance for providing goods, and commodity availability destination of consume. (Mentzer et al., 2001). In simpler words a supply chain is the cooperation among companies or organizations in order to improve the cumulative as well as individual performances. A supply chain is a basic element of the growth or manufacturing period. So far both could not work without it. Recent development in this era of new business strategies that must minimize risk in business by using friendly environment machinery , social acknowledgement as requirement...
8 Pages(2000 words)Term Paper

Logistics and Supply Chain Strategy

Sustainability increases the mode of rail and sea freight and intermodal transport. The demand characteristics in some cases influence the choice of transport mode and even the need for safety stocks. The appropriate logistic strategy is essential for any organization as the manufacturing lead time is affected by the product characteristics and design. Globalization is a factor that causes longer lead times as a result of longer distances (Chan and Lee, 2005, p.78). The basis for any logistic strategy is the product. The product pricing is affected by the choice of transport mode. The production flow is smoothened with good demand predictability. Demand predictability is improved with the help of information technology through gre...
6 Pages(1500 words)Assignment

Purchasing and Supply

In numerous industrial sectors, the trend has been moving away from adversarial or arms-length supplier relationships to relational or obligational contracting forms of relationship, such as outsourcing. Boeing is one company that has embraced this trend as evidenced by the production of its 787 Dreamliner aircraft. As a way of reducing their aircraft timeline to 4 years from 6 years, Boeing began to outsource parts and to sub-contract other companies internationally. However, as stated by Brandes et al (1997), outsourcing tends to have the most success if it is based on strategic decisions including cost efficiency and core competency considerations, instead of being solely prompted by financial troubles. 
Whereas Boein...
6 Pages(1500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Money Supply for FREE!

Contact Us