It took Paul Volker, who became Fed chairman in 1979, to put the monetarist theory into practice, adopting money-supply targets that drove interest rates to double-digit levels, sent the economy into a deep recession, and ultimately brought inflation down.†What is this monetarist theory?inflation is always and everywhere a monetary phenomenonthe main determinant of the inflation rate is the rate of growth of the money supplyinflation can be controlled by controlling money growthall of the above1. “Earlier in the week the central bank’s traders intervened aggressively in the money market to push the yield on last week’s Treasury bills sharply higher.”What kind of intervention is being referred to? The central banka) sold bills b) bought billsc) announced an easier monetary policy d) raised the legal reserve requirement2. “Several government bond issues will raise $400 million, with the central bank picking up at least $200 million. The central bank can also be counted on to take down more of the bonds than the planned $200 million it has announced if they seem to be selling badly.” This suggests that monetary policy isa) flexible b) inconsistent c) targeting on a fixed interest rated) targeting on a fixed growth rate of the money supply
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.
82. “It took Paul Volker, who became Fed chairman in 1979, to put the monetarist theory into practice, adopting money-supply targets that drove interest rates to double-digit levels, sent the economy into a deep recession, and ultimately brought inflation down.†What is this monetarist theory?inflation is always and everywhere a monetary phenomenonthe main determinant of the inflation rate is the rate of growth of the money supplyinflation can be controlled by controlling money growthall of the above1. “Earlier in the week the central bank’s traders intervened aggressively in the
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