Discussion Financial Markets_Monetary Systems_Regional Economic Integration
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Liberty University *
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604
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Economics
Date
May 11, 2024
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Key Term and Interest
The key term I have chosen for this module is Federal Reserve Bank
. Inflation was a very close second for me due to how directly inflation has profoundly affected the lives of every American since the COVID-19 crisis. I will be looking and hoping for a classmate to research on inflation, as I would
be interested in learning how inflation has impacted other economies around
the world since COVID-19. Ironically, I chose the key term whose mission is to combat and control inflation in the United States. Anyways, I ultimately chose Federal Reserve Bank due to my personal fascination with its founding and history up to the current decade. There have been several nights where I have procrastinated sleep just to watch a lengthy YouTube video discussing the Federal Reserve – whether it be how it originated or what conspiracy is cropping up about it now.
Explanation of Key Term
Satterlee (2023) tells us that the Federal Reserve Bank “is responsible for regulating the growth of the economy, which is accomplished by the increase
or decrease of money supply” (p. 145). On paper, the Federal Reserve Bank’s responsibility is only to the economy in the United States. However, as a major player in the global economy, inflation in the United States is bound to have effects on other economies as well. At the time of this writing, we are finally seeing (what we hope is) a light at the end of the long tunnel that is the Federal Reserve Bank’s efforts to cool inflation by continuously increasing interest rates since shortly after the COVID-19 crisis took hold of the world.
Major Article Summary
The article I chose to emphasize for this discussion is titled ‘
An evaluation of the inflation forecasting performance of the European Central Bank, the Federal Reserve, and the Bank of England’
. In the article, Argiri et al. (2023) discuss the challenges that central banks face in their mission to forecast errors on their respective national monetary policies. The analysis begins with the 2021-current inflation seen around the globe and how it caught many forecasters off guard, including those at the American Federal Reserve Bank. Officials at the Federal Reserve Bank initially believed the post-COVID inflation would be temporary, but as we all know, it persisted. The analysis then jumps into the respective forecasting methodologies of the three central banks including their data collection methods, forecasting approaches, and utilization of expert judgment. A key finding in the article is
that, despite efforts from all three central banks in recent decades to produce accurate and unbiased forecasts, errors still persist – especially in times of high volatility, which the COVID-19 crisis presented to most of the globe. The article identifies limitations of forecasting models and the influence of market expectations as predominant factors in these errors. Ultimately, the article concludes that even with advanced models and experts minds at the disposal of these central banks, it is extremely difficult
to predict future economic conditions, especially when factoring unforeseen events such as the COVID-19 crisis. Nonetheless, the article communicates the importance for each of these banks to continuously refine their forecasting methodologies in order to keep providing their respective policymakers with the best possible information for decision-making (pp. 1 -
13).
Discussion
I appreciate the cited article for its intersection of the key term I chose and integration of International Business concepts by including analyses of central banks in other countries. As I pointed out in my explanation, we in America are finally seeing signs of cooling inflation, which will hopefully be followed shortly after by lower interest rates. This spike in inflation and interest rates began shortly after the COVID-19 crisis which, as highlighted in
the article, was an unforeseen event that caught many forecasters off guard and derailed the economic predictions provided by central banks around the world. As our textbook defined the term, the Federal Reserve Bank’s responsibility is to regulate the growth of the economy – when economic activity spiraled out of control following the COVID-19 crisis, the officers of the Federal Reserve Bank had to steep interest rates up in an effort to cool this activity and re-regulate economic growth.
Another article I researched also focused on the same three central banks, but in a more critical context. Sokol (2022) explores the discourse surrounding ‘state capitalism’ with a focus on the role that central banks and
their monetary policies play in this concept. His discussion highlights the need for central banks around the world to address environmental sustainability and social equality (pp. 1305 – 1324). The inclusion of environmental and social elements is a novel take on the cited work’s conclusion of revising central bank forecasting methodology. Another article I researched by Haan & Hoogduin (2024) discusses the importance of clear and effective communication in central banks for effective policymaking, with a focus on the European Central Bank. They highlight that transparent, clear and effective communication is necessary for the central banks to meet
their objectives of targeting inflation and anchoring expectations about inflation (pp. 1 – 11). I also researched a couple of articles with critical stances against the Federal Reserve Bank. For example, in a critical analysis of the Federal Reserve Bank’s regulatory framework, Barredo-Zuriarrain et al.
(2020) argue that, in light of the 2008 financial crisis, a reevaluation of the central bank’s regulatory approaches in order to address the instabilities that
are arguably inherent in a capitalist economy (pp. 540 – 563). This aligns with the conclusion in the cited work that continuous development of forecasting methods is needed at central banks. Ironically, they published this conclusion just a year or two before another traumatic economic event fell upon us in the wake of COVID-19. Another article by Lim et al. (2019)
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Related Questions
The sustained decline in U.S. inflation rates over the past quarter century likely reflected all of the following, except: (a) a combination of digitalization and technological advances that reduce production costs; (b) a weak U.S. dollar in foreign exchange markets; (c) more exact production processes; (d) globalization
arrow_forward
Suppose you have $150,000 in a bank term account. You earn 5% interest per annum from this account.
You anticipate that the inflation rate will be 3% during the year. However, the actual inflation rate for the year is 6%.
Calculate the impact of inflation on the bank term deposit you have.
ii. Examine the effects of inflation in your city of residence with attention to food and accommodation expenses.
iii. The Australian Bureau of Statistics (ABS) reported in May 2016 that the civilian population in Australia over 15 years of age was 19.8 million.
Of this population of 19.8 million Australians, 12.5 million were employed and 0.7 million were unemployed.
Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force?
arrow_forward
Suppose that the price level in Canada was 100 in 2007, 105 in 2008, 110 in 2009, and 115 in 2010. Over this time period, a) the inflation rate was positive b) the inflation rate increased c) the inflation rate decreased d) hyper inflation occurred e) both a and c are correct
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E4
part-b: Inflation rate hit a record 13.3% in 1979 in the US following the Iranian revolution. To combat the rampant American inflation, President Jimmy Carter nominated Paul Volcker to serve as the chairman of the Board of Governors of the FED. Volcker's nomination was confirmed by the Senate and he took office on August 6th, 1979.
was the quintessential inflation hawk and he raised the discount rate by 0.5% immediately after taking office. He continued combating inflation throughout the 80s by increasing interest rates all the way up to 20%! This contractionary monetary policy worked and inflation rate decreased to 3.7% by 1989. This period in the 80s is known as the Volcker disinflation in American economic history.
Now illustrate the impact of Volcker's aggressive contractionary monetary policy on the American economy using your aggregate demand and supply plot from part a.
arrow_forward
(a)Discuss inflation and the impact of higher expected inflation in future periods can have on consumers, firms and how they make economic decisions.
(b)What are the two methods used to measure inflation? Discuss the differences between both measurements and which method is widely used to measure the inflation in Canada.
arrow_forward
Questıon One
Zambia has adopted an inflation targeting framework to manage its monetary policy. Using your knowledge of money and banking, elaborate on the key features of the inflation targeting framework and also bring out the positives and negative aspects of such a framework. What key gaps can you isolate that exist in the conduct of inflation targeting for Zambia?
You have been appointed as Chief Executive Officer for one of the largest Banks in Zambia. As your first task, you will need to review the Bank’s credit management policies. Based on the paper by George Akerlof on the “Market for Lemons”, write an advisory note (no more than one page) on how the bank can address the challenges of information Asymmetry, Adverse Selection and the Moral Hazard problem in the context of a commercial bank. Ensure to provide practical examples in your illustration.
arrow_forward
Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit.
arrow_forward
(e) The current rate of inflation exceeds the target inflation rate by 2 percent and there are no shocks to the
economy. If m=
0.25, 60.5, and 0.5, what is the change in inflation?
=
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Will the following lead to cost-push or demand-pull inflation? (a) The discovery of a large and rich vein of gold in the banks of Lagan(b) More militancy in wage demands by trades unions(c) A fall in output as a result of a prolonged lockdown of business while the government pays for salaries of furloughed workers(d) A higher tax on microchips(e) Increasing industrial concentration leading to oligopolistic industrial structures
Give proper explanations.
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Inflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply.
True
or
False
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Search for the “World Economic Outlook Database” on the internet and locate the most recent version. Use this database to select inflation data (units of percentage change) for Germany, Japan, and the United States for the period 1990 to 2010. Construct a table of annual inflation rates for these countries. Now construct a graph using annual inflation rates on the vertical axis and the year on the horizontal axis. Plot the annual inflation rates from your table in three separate lines on the same graph. How would you compare the experiences of these three countries based on your graph?
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A payment is said to be ________________ if it is automatically adjusted for inflation.
Question options:
a) cross referenced
b) matched
c) indexed
d) maintained
The most commonly cited measure of inflation in the United States is:
Question options:
a) the Cumulative Price Index (CPI)
b) the Deflationary Price Index (DPI)
c) the Consumer Price Index (CPI).
d) the Inflationary Price Index (IPI)
arrow_forward
QUESTION ONE
The Central bank of any country is a national bank responsible for the implementation of the monetary and fiscal policy of a country in order to avert or reduce inflation. This means that the bank is a vehicle through which the government accomplishes many of its economic objectives and deliver development to its citizens. Inflation can be too toxic to an economy as it diverts the economic intentions of any government. One of the impact of increased inflation is on an increased unemployment levels (Olivia Beria, 2016).i. Using Philips Curve, illustrate how increased inflations affects unemployment levels. ii. . Real money demand refers to the amount of money people want to hold in real terms, which means adjusted for inflation. It represents the desire for individuals to hold a certain amount of purchasing power in liquid form, in order to facilitate transactionsand make purchases. The real money supply is equal to the nominal amount of M2, divided by the fixed aggregate…
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Does the inflation rate in 2018 of 4.73% fall into the South Africa inflation target?
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Please give back one of my other questions that was the same as this. I had to resubmit this as I incorrectly typed the percentages before.
There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.25% nominal interest rate. He expected inflation to be 1.50%. Instead, inflation is −2.00% (deflation).
What is the real interest rate that Herb is expected to pay, and that he is actually paying?
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Suppose that the South African inflation rate is predicted to increase from its current rate of 7.1% in the
1st quarter of 2023 to about 11.5% by the end of the 3rd quarter of 2023, which of the following is a
possible economic effect?
a) Speculative practices
b) Encourages saving
c) High benefits to creditors
d) Reduces the costs of export industries and import-competing industries
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The price of cotton sky-rocketed during the Civil War because of Union naval blockades of Confederate ports. This was a primary reason the South experienced 4,000% inflation from 1861 to 1865 (four years). Specifically, what cost 1 cent in 1861 cost $40 in 1865. What was the equivalent annual inflation rate that the South was forced to endure?
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The inflation rate in the Philippines in the last quarter of 2013 was 4.8%
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Explain the relationship between inflation and the time value of money.
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Workers and managers in the XYZ Company have negotiated a wage agreement under the expectation that the inflation rate will be zero over the period
of the contract. In order to protect workers against unpredictable inflation, however, the contract states that at the end of each year, the wage rate will
increase by the same percentage as the increase in the consumer price index (CPI). At the beginning of the contract, the CPI is 428 and the wage rate is
set at $12.00 an hour. At the end of the first year the CPl is 450, and at the end of the second year the CPI is 468. What will the new wage rate become at
the end of the first year? The second year? Show your work.
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Q1:
e) What are the various effects of inflation?f) State and explain the monetary measures to control inflation.
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Related Questions
- The sustained decline in U.S. inflation rates over the past quarter century likely reflected all of the following, except: (a) a combination of digitalization and technological advances that reduce production costs; (b) a weak U.S. dollar in foreign exchange markets; (c) more exact production processes; (d) globalizationarrow_forwardSuppose you have $150,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that the inflation rate will be 3% during the year. However, the actual inflation rate for the year is 6%. Calculate the impact of inflation on the bank term deposit you have. ii. Examine the effects of inflation in your city of residence with attention to food and accommodation expenses. iii. The Australian Bureau of Statistics (ABS) reported in May 2016 that the civilian population in Australia over 15 years of age was 19.8 million. Of this population of 19.8 million Australians, 12.5 million were employed and 0.7 million were unemployed. Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force?arrow_forwardSuppose that the price level in Canada was 100 in 2007, 105 in 2008, 110 in 2009, and 115 in 2010. Over this time period, a) the inflation rate was positive b) the inflation rate increased c) the inflation rate decreased d) hyper inflation occurred e) both a and c are correctarrow_forward
- E4 part-b: Inflation rate hit a record 13.3% in 1979 in the US following the Iranian revolution. To combat the rampant American inflation, President Jimmy Carter nominated Paul Volcker to serve as the chairman of the Board of Governors of the FED. Volcker's nomination was confirmed by the Senate and he took office on August 6th, 1979. was the quintessential inflation hawk and he raised the discount rate by 0.5% immediately after taking office. He continued combating inflation throughout the 80s by increasing interest rates all the way up to 20%! This contractionary monetary policy worked and inflation rate decreased to 3.7% by 1989. This period in the 80s is known as the Volcker disinflation in American economic history. Now illustrate the impact of Volcker's aggressive contractionary monetary policy on the American economy using your aggregate demand and supply plot from part a.arrow_forward(a)Discuss inflation and the impact of higher expected inflation in future periods can have on consumers, firms and how they make economic decisions. (b)What are the two methods used to measure inflation? Discuss the differences between both measurements and which method is widely used to measure the inflation in Canada.arrow_forwardQuestıon One Zambia has adopted an inflation targeting framework to manage its monetary policy. Using your knowledge of money and banking, elaborate on the key features of the inflation targeting framework and also bring out the positives and negative aspects of such a framework. What key gaps can you isolate that exist in the conduct of inflation targeting for Zambia? You have been appointed as Chief Executive Officer for one of the largest Banks in Zambia. As your first task, you will need to review the Bank’s credit management policies. Based on the paper by George Akerlof on the “Market for Lemons”, write an advisory note (no more than one page) on how the bank can address the challenges of information Asymmetry, Adverse Selection and the Moral Hazard problem in the context of a commercial bank. Ensure to provide practical examples in your illustration.arrow_forward
- Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit.arrow_forward(e) The current rate of inflation exceeds the target inflation rate by 2 percent and there are no shocks to the economy. If m= 0.25, 60.5, and 0.5, what is the change in inflation? =arrow_forwardWill the following lead to cost-push or demand-pull inflation? (a) The discovery of a large and rich vein of gold in the banks of Lagan(b) More militancy in wage demands by trades unions(c) A fall in output as a result of a prolonged lockdown of business while the government pays for salaries of furloughed workers(d) A higher tax on microchips(e) Increasing industrial concentration leading to oligopolistic industrial structures Give proper explanations.arrow_forward
- Inflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply. True or Falsearrow_forwardSearch for the “World Economic Outlook Database” on the internet and locate the most recent version. Use this database to select inflation data (units of percentage change) for Germany, Japan, and the United States for the period 1990 to 2010. Construct a table of annual inflation rates for these countries. Now construct a graph using annual inflation rates on the vertical axis and the year on the horizontal axis. Plot the annual inflation rates from your table in three separate lines on the same graph. How would you compare the experiences of these three countries based on your graph?arrow_forwardA payment is said to be ________________ if it is automatically adjusted for inflation. Question options: a) cross referenced b) matched c) indexed d) maintained The most commonly cited measure of inflation in the United States is: Question options: a) the Cumulative Price Index (CPI) b) the Deflationary Price Index (DPI) c) the Consumer Price Index (CPI). d) the Inflationary Price Index (IPI)arrow_forward
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SEE MORE QUESTIONS
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Recommended textbooks for you
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning