Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
Problem 1
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Does the lender of last resort function of central banks introduce moral hazard into the financial system? Explain.
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Briefly explain why central bank independence can be a solution to the time- inconsistency problem.
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What is shadow banking and what was its role in the financial crisis of 2007-2009?
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