Problem Sheet on Financial Management

Problem Sheet on Financial Management - Problem set 3...

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Problem set 3 Macroeconomic Theory and Policy Term II BM Date 23 rd November 2011 Qn.1. Read the article below and answer the questions that follow. America's economy: Not by monetary policy alone Another dose of “quantitative easing” is necessary; but it will not, by itself, revive America’s economy Oct 28th 2010 | from PRINT EDITION of ‘The Economist’ ONE of the few people to come out of the economic crisis well is Ben Bernanke, chairman of the Federal Reserve, America’s central bank. He won acclaim for his decision to pump trillions of dollars into the American economy by providing liquidity to frozen financial markets and, from late 2008, by buying government bonds and mortgage-backed securities, or “quantitative easing” (QE). By common consent, these measures helped avert global economic disaster. Now there is pressure for Mr Bernanke to work his magic again. Although America’s economy no longer looks on the point of collapse, it has failed to return to healthy growth. Unemployment, at 9.6%, is five percentage points higher than it was before the crisis and GDP is not growing fast enough to bring the jobless rate down. This economic slack is pushing inflation worryingly low. Core consumer prices rose a mere 0.8% over the past year. The Fed is therefore expected to announce a new round of asset purchases, widely known as QE2, at the end of its November meeting next week.
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