1.On November 28, 1990, Federal Reserve Chairman Alan Greenspan told the House Banking Committee that, despite possible benefits to the U.S. trade balance, “a weaker dollar also is a cause for concern.” This statement departed from what appeared to be an attitude of benign neglect by U.S. monetary officials
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.
1.On November 28, 1990, Federal Reserve Chairman Alan Greenspan told the House Banking Committee that, despite possible benefits to the U.S. trade balance, “a weaker dollar also is a cause for concern.” This statement departed from what appeared to be an attitude of benign neglect by U.S. monetary officials toward the dollar’s
a. What was the likely reaction of the foreign exchange market to Mr. Greenspan’s statements? Explain.
b. Can Mr. Greenspan support the value of the U.S. dollar without intervening in the foreign exchange market? If so, how?
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