BUSINESS 115 ASSIGNMENT PAPER

BUSINESS 115 ASSIGNMENT PAPER

Subject: Business    / Accounting    

Question

    Suppose the Fed were required to conduct monetary policy so as to hold the unemployment rate below 4%, the goal specified in the Humphrey–Hawkins Act. What implications would this have for the economy?
    The statutes of the recently established European Central Bank (ECB) state that its primary objective is to maintain price stability. How does this charter differ from that of the Fed? What significance does it have for monetary policy?
    Do you think the Fed should be given a clearer legislative mandate concerning macroeconomic goals? If so, what should it be?
    Referring to the Case in Point on targeting, what difference does it make whether the target is the inflation rate of the past year or the expected inflation rate over the next year?
    Here are annual values for M2 and for nominal GDP (all figures are in billions of dollars) for the mid-1990s.
    1993    3,482.0    $6,657.4
    1994    3,498.1    7,072.2
    1995    3,642.1    7,397.7
    1996    3,820.5    7,816.9
    1997    4,034.1    8,304.3
        Compute the velocity for each year.
        Compute the fraction of nominal GDP that was being held as money.
        What is your conclusion about the stability of velocity in this five-year period?
    Here are annual values for M2 and for nominal GDP (all figures are in billions of dollars) for the mid-2000s.
    2003    6,055.5    $10,960.8
    2004    6,400.7    11,685.9
    2005    6,659.7    12,421.9
    2006    7,012.3    13,178.4
    2007    7,404.3    13,807.5
        Compute the velocity for each year.
        Compute the fraction of nominal GDP that was being held as money.
        What is your conclusion about the stability of velocity in this five-year period?
    The following data show M1 for the years 1993 to 1997, respectively (all figures are in billions of dollars): 1,129.6; 1,150.7; 1,127.4; 1,081.3; 1,072.5.
        Compute the M1 velocity for these years. (Nominal GDP for these years is shown in problem 1.)
        If you were going to use a money target, would M1 or M2 have been preferable during the 1990s? Explain your reasoning.
    The following data show M1 for the years 2003 to 2007, respectively (all figures are in billions of dollars): 1,306.1; 1,376.3; 1,374.5; 1,366.5; 1,366.5
        Compute the M1 velocity for these years. (Nominal GDP for these years is shown in problem 2.)
        If you were going to use a money target, would M1 or M2 have been preferable during the 2000s? Explain your reasoning.