1A - Dustin Johnston Monetary Economics Dr. Ruiz October...

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Dustin Johnston Monetary Economics Dr. Ruiz October 16, 2009
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1A. By being a quasi-governmental entity the Federal reserve’s main job is to control monetary policy for the US and as the bank for the United States government they Issue new currency, maintain the US Treasury’s bank accounts (including borrowing). However the Secretary of the Treasury along with congress control the governments budget. B. Because of the rate of inflation(general price level rising) and your prices being fixed your products would actually be cheaper in comparison thus over the period the amount of products you would sell would increase at an increasing rate due to the time value of money. You could also assume that the firm would practice menu pricing at the beginning of the period. C. The Fed as both the bankers bank and the governments bank has the job of issuing loans to both banks and the US Treasury. As the bankers bank it makes discount loans on which they charge interest (discount rate) and as the governments bank the Fed issues bonds, notes and bills, which are securities and not actually under the loans heading. D. Currency is the largest of the Fed’s liabilities and includes al money circulating in the nonbank public. E. It would basically depend on if they were pursuing an expansionary or contractionary monetary policy, however if they were trying to maintain the status quo they would maintain or slightly raise the discount rate to allow the banks to borrow more but at the same time keep a handle on inflation. To facilitate a expansionary policy they would keep the discount rate low and allow more borrowing, contractionary raise the discount rate to prevent a rapid increase in the money supply. 2A. Yes, there seems to be a pretty large correlation between central bank
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1A - Dustin Johnston Monetary Economics Dr. Ruiz October...

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