Discussion board 4

After reading chapters 22-24, please share your thoughts regarding the material. This may include:

  • Questions you may have regarding information covered in the chapters
  • Information you found interesting
  • Your opinion regarding the information.

Replies for below comments:

1) In chapter 15 it talks about the money multiplier. I have read this a few time and I am confused. I get that it has something to do with the reserves and the changing in money supply but the rest is beyond me. I found it interesting why the FDIC was put in place. I can’t imagine having my money in a bank and then the bank close and losing my money. I think this is a great insurance that was put in place to protect investors.

In chapter 16 I found it interesting how the fed influences interest rates and the four tools it uses to influence changes. Open market operations, changes in the reserve ratio, changes in the interest rates pain on reserves and discount rate changes. I learned a lot from reading this section.

2) In Chapter 15, which talks about money, banking and central banking defines the functions of money where I learnt that unit of accounting, store value and standard deferred payment are central, necessary and essential properties of money respectively, the in depth definition of money is what I also found interesting.

Chapter 16, explains the demand for money in an effective way and the most interesting thing that was defined using a real time example was the effects of an increase in the money supply, another interesting factor I learnt is about inflationary gap along with monetary policy and it’s formulation for equation of exchange. The factors that influence the quantity of money that people desire to hold and I could also learn about the use of credit policy by today’s fed.

3) In Chapter 15 i like the concepts of Federal reserve structure and Fiduciary Monetary system. While dealing with macro economics we should have the policies and institutions to be in place to regulate the financial products like derivatives. Studying these concepts i learn how the derivatives were responsible for multiple economies crash in 2008.

Learning characteristics of money intrigued me very much as we had a demonetization of currency in India these concepts really helped me to better know how economies work. I also learned the importance of central banking system for every country. In chapter 16 i learned about the inflation and demand for money. The currency of USA US dollars have the utmost value as the gold and oil are traded and many countries like to keep the dollar reserves as the currency monetary policy is very stable. More than 80% of the world money is virtual. The concepts of interest rates which are adjusted based on countries reserves which in turn depends on government bonds. This shows these institutions will really have the ability to change the government policies domestically and internationally. This is a very broad subject to discussion with many parameters. I really enjoyed this weeks lessons.

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