HW6

Topics: Monetary policy, Central bank, Currency Pages: 3 (563 words) Published: February 22, 2015

Chapter 8: What are the instruments the Federal Reserve uses for controlling the money supply? Please give a description of how each of the instruments works to increase and decrease the money that is in the economy. Open-Market Operations – The Fed conducts open-market operations when it buys government bonds from or sells government bonds to the public. When the Fed sells government bonds, the money supply decreases. When the Fed buys government bonds, the money supply increases. Reserve Requirements - The Fed also influences the money supply with reserve requirements. Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposits. The reserve requirement is the amount (%) of a bank’s total reserves that may not be loaned out. Increasing the reserve requirement decreases the money supply. Decreasing the reserve requirement increases the money supply. Changing the Discount Rate - The discount rate is the interest rate the Fed charges banks for loans. Increasing the discount rate decreases the money supply. Decreasing the discount rate increases the money supply. Purchases and Sales of Foreign Reserves - Works just like open market operations but involves assets denominated in foreign currency. When the Fed sells foreign reserves, the money supply decreases. When the Fed buys foreign reserves, the money supply increases.

Chapter 9: Using information from the book and citing external Internet sources as applicable, explain how China's approach to the US dollar - Chinese yuan exchange rate has benefited China in recent years. Explain how/why the United States didn't approve of the Chinese policy and explain how the exchange rate policy was unfavorable to the United States. Explain the unintended consequences of exchange rate intervention. Lastly, where are we now? Is the Yuan still undervalued? Much of China’s remarkable economic growth is due to its success in export markets. Many factors have helped China...
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