Pt1420 Unit 1 Assignment
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ASSIGNMENTS
You are required to complete both below. The word limit is 2,500 words for each assignment but this does not include the stimulus material given here, the questions that follow it, or the bibliography that you are required to include at the end of each assignment. Specific guidance will be given on how to approach each assignment in class but the style to be adopted is strongly analytical. This means that your points must be supported by reasoned argument. Wherever possible, appropriate data should be used to support your arguments and diagrams that support and illustrate your arguments are encouraged. Please note that although your submission will be judged in a holistic manner and credit will be awarded wherever the discussion …show more content…
When the Federal Reserve sets monetary policy for the US economy, it is also defining monetary conditions for many parts of the emerging world too. These countries mostly don't have the West's debt difficulties. Offer them low interest rates and their economies boom. Demand for commodities surges. Commodity prices soar. For the Western world, food and energy inflation goes up. With weak labour markets, higher prices rise are not matched by higher wages. That means we're all facing real wage cuts. And wage cuts imply lower growth. Lots of people happily talk about a Plan B, as if it's possible to simply wave a magic wand to get us all out of this mess. But until they come up with a solution to the ongoing Japan-style difficulties associated with high debt and low incomes, their magic wands will remain as limp as their ideas. Dreams are all well and good, but every so often it's useful to take a dose of reality. Answer ALL of the following questions. 1 Why is inflation an economic problem? 2 How does an increase in interest rates work to contain/reduce inflation? 3 Why is encouraging growth important? 4 Explain fully the phrase underlined in the passage above. 5 Explain the sentence “Housing markets, meanwhile, are no longer able to deliver the turbo-charged recoveries of old”. 6 Explain the sentence in bold font in the passage above. 10 EXAMPLE OF AN …show more content…
It is assumed that demand for Polish goods is elastic and therefore as their price falls, a greater quantity will be demanded and more zloties will be demanded to pay for them. Conversely, as the exchange rate depreciates, imports into Poland become more expensive and, assuming demand for imports is elastic, a smaller quantity will be demanded and fewer zloties will be supplied. Figure 1 here Assume that the exchange rate is fixed at fixed at x euros per zloty and e1 and e2 are the limits of fluctuation under the fixed exchange rate. With demand and supply of zloties initially given by DZ1 and SZ1 respectively, the exchange rate is initially in equilibrium at its fixed rate. Assume now that the supply of zloties increases as Polish residents demand more imports. There is downward pressure on the exchange rate and, if supply shifts to SZ2, the authorities will be obliged to intervene to prevent the exchange rate moving below its lower margin. The most direct method of intervention is for the authorities to use their reserves of euros to buy up the excess supply of zloties at the fixed exchange rate. This implies an increased demand for zloties. Downward pressure on the zloty is neutralised when the demand for zloties shifts to DZ1. The major advantage a country gains from other countries using its currency internationally is seignorage revenue. This is the difference between the cost of producing money and its purchasing power. Issuers of money (usually
ASSIGNMENTS
You are required to complete both below. The word limit is 2,500 words for each assignment but this does not include the stimulus material given here, the questions that follow it, or the bibliography that you are required to include at the end of each assignment. Specific guidance will be given on how to approach each assignment in class but the style to be adopted is strongly analytical. This means that your points must be supported by reasoned argument. Wherever possible, appropriate data should be used to support your arguments and diagrams that support and illustrate your arguments are encouraged. Please note that although your submission will be judged in a holistic manner and credit will be awarded wherever the discussion …show more content…
When the Federal Reserve sets monetary policy for the US economy, it is also defining monetary conditions for many parts of the emerging world too. These countries mostly don't have the West's debt difficulties. Offer them low interest rates and their economies boom. Demand for commodities surges. Commodity prices soar. For the Western world, food and energy inflation goes up. With weak labour markets, higher prices rise are not matched by higher wages. That means we're all facing real wage cuts. And wage cuts imply lower growth. Lots of people happily talk about a Plan B, as if it's possible to simply wave a magic wand to get us all out of this mess. But until they come up with a solution to the ongoing Japan-style difficulties associated with high debt and low incomes, their magic wands will remain as limp as their ideas. Dreams are all well and good, but every so often it's useful to take a dose of reality. Answer ALL of the following questions. 1 Why is inflation an economic problem? 2 How does an increase in interest rates work to contain/reduce inflation? 3 Why is encouraging growth important? 4 Explain fully the phrase underlined in the passage above. 5 Explain the sentence “Housing markets, meanwhile, are no longer able to deliver the turbo-charged recoveries of old”. 6 Explain the sentence in bold font in the passage above. 10 EXAMPLE OF AN …show more content…
It is assumed that demand for Polish goods is elastic and therefore as their price falls, a greater quantity will be demanded and more zloties will be demanded to pay for them. Conversely, as the exchange rate depreciates, imports into Poland become more expensive and, assuming demand for imports is elastic, a smaller quantity will be demanded and fewer zloties will be supplied. Figure 1 here Assume that the exchange rate is fixed at fixed at x euros per zloty and e1 and e2 are the limits of fluctuation under the fixed exchange rate. With demand and supply of zloties initially given by DZ1 and SZ1 respectively, the exchange rate is initially in equilibrium at its fixed rate. Assume now that the supply of zloties increases as Polish residents demand more imports. There is downward pressure on the exchange rate and, if supply shifts to SZ2, the authorities will be obliged to intervene to prevent the exchange rate moving below its lower margin. The most direct method of intervention is for the authorities to use their reserves of euros to buy up the excess supply of zloties at the fixed exchange rate. This implies an increased demand for zloties. Downward pressure on the zloty is neutralised when the demand for zloties shifts to DZ1. The major advantage a country gains from other countries using its currency internationally is seignorage revenue. This is the difference between the cost of producing money and its purchasing power. Issuers of money (usually