ECON 205 Lecture (4.28.2008)

ECON 205 Lecture (4.28.2008) - o They came with fixed rate...

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ECON-205 Lecture 4-28-2008 Monetary policy (tools) - Reserve ratio - Discount rate o The rate of interest charged by the FRB - Interest - Open market operation: selling and buying bonds, is the most powerful Two variables: 1) money supply, 2) investments Purpose of monetary tools is to increase the money supply, which would increase investments Shrinking the money supply by changing percent up and down (Reserve ratio) Objectives of FRB: to control the money supply and to control the banking system of America CHAPTER 34: Exchange Rates and the Balance of Payments Why do we import? Gold standard (1879-1934) - Assumptions/conditions o Every country has to back their currency to the gold o Every country has to show how much each country’s currency is worth in gold (measurement: used to be grains, but now, it’s in ounces) o Free movement of gold between countries
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Unformatted text preview: o They came with fixed rate of exchange At that time, we could have paid in dollar or gold certificate Forty-five ambassadors from the western world met in a city called Bretten Woods (1945-1970)-International Monetary Fund (IMF)-Picked up the dollar as a key currency-Pegged the dollar to the gold ($3500 per ounce)-Each country has to deposit money with the IMF in dollars Floating: value of the currency will be determined (fixed) through the market forces of supply and demand Currency adjustment-Devaluation: lowering the value of the currency by increasing the gold value.-Appreciation: increasing the value of the currency in terms of other currency.-Depreciation: lowering the value of the currency in terms of other currency-Floating-Revaluation...
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This note was uploaded on 09/26/2009 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.

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