Comments Read by 10, people The Fed has no mandate outside the 50 states, but it unofficially determines foreign debt and currency markets across the globe in a big way anyway. Now, chairwoman Janet Yellen has testified before Congress that the Federal Reserve is looking to increase interest rates, on the pretext of low inflation.
And, of course, it is perfectly true that a poorly managed monetary system, or one which is experiencing something like an oil-price shock, can also experience inflation. Without going into the details prematurely, there are technical reasons why a little bit of inflation is useful and normal.
It discourages people from hoarding money and encourages healthy levels of consumption and investment. The trick is for the government to spend enough to ensure full employment, but not so much, or in such a way, as to cause shortages or bottlenecks in the real economy.
These shortages and bottlenecks are the actual cause of most episodes of excessive inflation. If the mere existence of fiat monetary systems caused runaway inflation, the low, stable rates of consumer-price inflation we have seen over the past thirty-plus years would be pretty difficult to explain.
What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances — no matter what that state happens to be. Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused — they are starkly and comprehensively counter-factual.
This has led to a public discourse about things like budget deficits and Treasury debt which has become, without exaggeration, utterly detached from reality. Time and time again, these pundits declaim that hyperinflation is imminent, that interest rates are on the verge of an uncontrollable upward spike, and that the jig will be up for sure just as soon as the next T-bond auction fails.
The gold standard was finally and completely abolished over the course of a two-year period which started inwhen Richard Nixon ended the convertibility of the dollar for gold and devalued U.
Inthe U. The monetary system we inaugurated then is the one we still have now. It is not the same as the one which has been adopted by most of Europe — and this very prominent source of confusion about the role of money in the world today will receive close scrutiny at the proper point.
Ingold-linked money became fiat-money — not for the first time, of course, but for the first time in a long time. The political emphasis, at the time, was entirely on the importance of making sure that no one panicked. The officials of the Nixon administration acted like cops who had just roped off a fresh crime scene: But what had really happened was epoch-making and paradigm-shattering.
It was also, for the rest of the s, polymorphously destabilizing. Because no one had a plan for, or knew, what all of this was going to mean for the reserve currency status of the U. Certainly not Richard Nixon, who was by then embroiled in the early stages of the Watergate scandal.
But no one else was in charge of this either. They wanted to forestall any kind of panic too. But, inevitably, as the real consequences of the new monetary regime kicked in, and as unforeseen and unintended knock-on effects began to be felt, this changed.
The world had a choice to make after the closing of the gold window, but even though it was a very important choice, with very high-stakes outcomes attached to it, there was no international mechanism for making it — it just had to emerge from the chaos.
But, as things unfolded, no other choice could be imposed on the only economic powerhouse-nation, so all the other little nations eventually just had to work out ways to adjust to the new status quo.Chapter 26 Preliminary Quiz Central Banking and Monetary Policy Multiple Choice Questions: Enter your answer to each of the questions in the blank to the left of the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Of the four players in the money supply process, most observers agree that.
Free monetary policy papers, essays, and research papers. Who must file. In some cases, the amount of income you can receive before you must file a tax return has increased. Table 1 shows the filing requirements for most taxpayers. Exemption phaseout. You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain.
Multiple choice questions Now test your understanding of what this section has covered so far. The following multiple choice questions should take approximately 10 minutes to complete.
Restrictive monetary policy is the reverse of an expansionary monetary policy: Excess reserves fall, which raises interest rate, which decreases investment, .