Impact of Money Supply

The early to mid-eighties presented a challenge to the fed. A combination of falling oil prices and the Federal Reserve 's control of the money supply, helped to slow down an inflation that had been largely out of control in the previous decade. By the mid-eighties, the economy had bounced back and the United States was entering into one of the longest periods of consistent and sustainable economic growth since the second world war. Along with this growth, the annual inflation rate did not exceed 5%.

The Federal Reserve System, often referred to as the Fed, is the United States central bank. It was created by Congress to provide the nation with a safer, more flexible and stable monetary and financial system. The Fed is an independent institution that is to some extent influenced by the government. It is under the supervision of the congress. On the other hand, as an independent body, the Fed has the power to act freely, without its decisions being ratified by the President of the United States, the Congress or any other executive member of the government and is structured to be economically independent. The Fed is also composed of twelve numbered districts, each with its own Federal Reserve Bank.

The terms medium of exchange. store of value (purchasing power jumping time segments), and unit of account (quoting prices) were the terminology utilized on page 190 of chapter ten. After this terminology, the section commodity and fiat monies was written. The functional weight from Principles of Macroeconomics is that commodity monies are tangibly traded with the use in in realization and fiat monies “{are} items designated as money that are intrinsically worthless” (p. 191). After the section on commodity and fiat monies concluded with a summation regarding currency debasement, Case, Fair, and Oster listed two equations for transaction money and broad money. The transaction money equation was M1 = currency held outside banks + demand deposits + travelers’ checks +

Monetary policy is used by the Federal Reserve to achieve two goals, which are to create maximum stable employment, and create stable prices which in turn causes stable inflation. In the Fed Chairman game, it asks you to control and adjust the federal interest rate. Adjusting the federal interest rate can cause more stable employment and can help the economy become steady. When you are given this control in the game you essentially are performing monetary policy.

Monetary policy has to do with the regulations that a government puts in place to control money in circulation in the economy. An effective monetary policy will ensure that current and anticipated events in the economy of a country are taken care of. The Federal Reserve (The Fed) is the central bank of the United States, and it is responsible for the formulation and execution of these policies.

Throughout the course of this semester, we have examined the role of money in our society and have been introduced to scholars and economists that have offered rationale for the social, political and economic implications of money. One overwhelming theme that has lingered throughout most of the readings and lectures is the idea of inequality, particularly within the scope of the American economy. While other economies such as China or India are labor-based economies, I have found that America’s Capitalist economy is fueled by multiple facets racial inequality. The moral argument against racial inequality under an economic lens is simple yet, expected; when we deny opportunities for people of color in the same way we have them established

Monetary policy when a central bank has an influence on a country’s money supply. Monetary policy is a large factor when it comes to a country’s economy it can either affect them in a positive way or in a negative way. One case where a successful implementation of monetary policy in the United States occurred in 1982: the anti-inflationary recession caused by the Federal Reserve under the guidance of Paul Volcker.You will notice the steps that mR Volcker took to help lower these rates. How he helped change America 's economy.You will see how monetary policy has its good and bad outcomes. also how it is used for the greater good for the whole economy.

The relationship between money supply and price level is very influential topic in the field of macroeconomic literature, which has received greater attention among government agencies, policy makers and researchers. This topic has been continuously discussed in the economic society since 16th century. The general price level of every economy is being continuously reported to be high from 16th century to present 21st century except some years. These higher price levels compelled the economists to carry out the study on whether over money supply are responsible to cause inflation or there are any other reasons responsible for high price or inflation. The economists have spent a lot of time in finding the causes of higher prices in the economy and reached the conclusion that higher prices are caused by different factors like unnecessary money supply, higher income, high wage rate, scarcity of commodities, increase in cost of production, international reasons, institutional factors etc. However, unnecessary and over money supply has been taken as the influential factor responsible to cause inflation or higher price in the economy by most of the economists in the world.

There are several procedures to estimate the anticipated money supply; the present study has applied ARIMA structures of narrow and broad money supply for the estimation of anticipated money supply. After identifying anticipated money supply, a regression equation has been performed taking price level as dependent variable and anticipated money supply as explanatory variable.

Combine with the first order derivative of the Lagrange function, we can obtain a few functions which could link the exchange rate with a price level, consumption, and interest rate. We focus on the case that the current account is always zero. A zero current account for a small open economy and the rest of the world imply that〖 C〗_t^*=Y_t^*-G_t^*; and C_t Q_t^((1-α)/α)=Y_t-G_t. With all the results we can express the equilibrium condition in logs. Price setting as a

Project Report Submitted in Partial Fulfillment of the Requirements for the Degree of Masters of Science

Monetary policy is the set of means implemented by a central bank to influence the economy by regulating its currency. Therefore, in every country, central banks play a key role in the economy of the country and implement a monetary policy. In the US, the Fed develops and implements monetary policies through certain indicators that will be discussed all through this paper focusing on the time period of 1997 to 1999. Those indicators are: economic growth as measured by real GDP, price level, interest rates, targets and goals of monetary policy and the Fed Chairman’s leadership in attaining them. 1997 marks the beginning of the Asian financial crisis that shook the global financial markets. However, “The U.S. economy remained largely insulated from the Asian crisis and the dollar held firm all through 1997-1999”( Laidi, p, 46).

Project Report Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Science

Similarly, the study of Ramchandran and Kamaiah (1992) has also noticed the uni-directional causality running from money supply to price level for the economy of India as in case of Darrat (1986). On the other hand, the study of Aghevli and Khan (1978) for Brazil, Columbia, the Dominican Republic, and Thailand, has found bidirectional causality between money and prices. Likewise, Maish and Maish (1994) examined the question of causality between money and price in the context of Asian developing economy, India. This study supported monetarists’ view that money supply was leading variable and price was lagging variable in the context of India when they studied the linkage between money supply and price during the period

Study of devaluation analysis based on exchange rate systems will be done by econometric analysis. For this study time series data will be applied.