Economics by Boyd and Smith - Assignment Example

Download file to see previous pages According to the paper a store of value such that it holds its own value over a longer duration of time, although it does not elevate money so superior because there are other stores of value such as land. However, it is a portable store of value that is available in various convenient denominations, and lastly, it is a unit of account that provides a common measure for the value of commodities and services in exchange, which enables buyers and sellers to know how much of the goods to sell or purchase.  Federal eserve controls the money supply by : Setting the reserve requirement for banks, through buying and selling treasury bills and notes and by moderating the supply of money through lowering or raising the interest rates which are passed to the banks and finally to the consumers.
This discussion outlines that the assumption of constant velocity implies that if an assumption is additional, the money velocity is constant, and then the equation yields a fundamental theory of the money effects known as the money’s quantity theory useful in determining the nominal GDP. Raising the inflation from 6 to 8 percent will mean that the currencys interest rate catches up with the higher inflation rising by 6 points a year from their original value leaving the real return on that currency unchanged. Fiscal and Monetary policies play a role in causing ending hyperinflations, usually done by the central bank or the government to ensure the control of flow of money, and; therefore, minimizing both the exchange rates and the government’s expenditure. The interest rate that is nominal is the stated rate of return on a financial asset e.g. the interest rate that a bank pays on deposition certificate while the real interest rate is the rate, which is nominal on return and one adjusted for inflation. ...Download file to see next pages Read More