Multiple Question Related to the Money Market


Question 1

Are credit cards or debit cards money? Explain your answer.

As per the concern regarding spending, keeping and acquiring an important separation from charges, every part of portion card has unforgettable impediments and preferences. Generally, there are following important sorts of card:

  • The first one is the cards that permit individuals get money and pay it as per their own desire. It mainly includes Charge cards, Visas and Store cards.

  • The second one is the cards that give individuals an opportunity to blaze with the help of money they starting now have or inside an agreed office of overdraft. It mainly includes prepaid cards and checks cards.

Suitability of a card depends on the lifestyle of an individual; whether one is sure about payment of their card bills, or whether they feel uncertain about the payment of card bills. A charge card is considered as a method to deal with purchases of things now and pay the amount later. A man generally keeps running up a bill and make payment of it after some time as per their suitability.
The direct Debit card enables the people to pay everything on a month to month basis, if she or he is not on top of their bank balance, they will be able to overdrawn amount when the portion turns out. Another form of a card is MasterCard which give high security to individuals against blackmail. MasterCard gives an extra individual security in case one has a problem with the organizations and stock they have purchased that cost amongst £200 and £ 35,000 (Duygan?Bump, 2013). There is not getting requirement if an individual goes for an overdraft. Check cards also have some distortion protection against unorganized businesses, but not so much as provided in Visas.

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Question 2

“When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base.” Is the previous statement correct or incorrect? Explain your answer.

The operation of an open business part occurs when the Fed offers or purchases different available securities in the open business division. Operations of open business influence the financial base by altering the different store measures during tackling with a record system. If the Fed requires lessening the different money measure; it provides various securities of government in the open business part. All such arrangement minimizes banks or bank stores, or their potential customers, make payment for the securities provided by the organization (Fricke, 2015). During the time of bank stores lessen, they need to acquire a large number of credits, which ultimately minimize the measure of stores, and the measure of money reduces. It can be said that Fed is unable to lead an open business area function and extension changes efficiently. This can be successful done by changing the financial base of money measure. Thus, it is very critical to utilize a segment of open operation to alter the overall measure of money while maintaining the cash related base unfaltering.

Question 3

Monetary policy is action taken by the Fed to influence the level of real GDP. Suppose the Fed wants to increase the money supply. What three tools could the Fed use to achieve this goal? Be specific in your answer and discuss the implications of this policy.

The Federal Reserve significantly utilizes three main instruments to influence the overall money supply in the existing economy. Operations of open market are considered the very important of the three, and contain the offering and acquiring of U.S treasury securities to “softly” reduce or increasing the trade supply out little expansions after some time.
The markdown rate is generally considered the financing cost which is charged by the banks when they get from the Federal Reserve. Apart of it, the discount rate can significantly change by the Federal Reserve either to dampen or invigorate obtaining from a different budgetary association (Abbassi, 2012). Generally, alteration in the refund rate has a more significant influence on the level of money supply, and mostly utilized to deliver a message to the financial gathering regarding the plan of Federal Reserves to reduction or augmentation of the money supply.

Question 4

The problem typically during a recession is not that there is too little money, but too little spending. If the problem was too little money, what would be its cause? If the problem was too little spending, what could be its cause? (Be sure to use some concepts from the previous module as well).

It can be said that shortage of cash significantly influences the money supply of a country. Cash shortage occurs due to the three important problems: racketeering, usury and flattening. Generally, Emptying is considered self-evident: if the economy of a particular country is working with a close limit of max and the supply of cash starts waning (Carpenter, 2016). At this stage, the market will require focusing at a lower level of value. This will bring discouragement and subsidence in the pessimistic scenario of a country. 
Usury is considered as a steady deplete on the supply of cash in a particular country. Management of banks spends a huge amount of the enthusiasm into the economy. They efficiently relend the different parts to bring significant changes in obligations and various related premium expenses. All such functions of banks, declining their liquidity. The remaining portion is redirected towards the money market economy. It is generally considered as the two-circle economy which is significantly utilized for monetary con amusements such as conjecturing cost related items, increase the level of trading in share system, subsidiary exchange and FOREX (Berkowitz, 2015). All these are considered the famous exploitative apparatus.
There are various factors which influence the level of spending in an economy. Some of them are following:

  • Direct and Indirect Taxation

  • Rate of Interest

  • Amount of Real income

  • Customer Confidence

  • Supply of Credit

  • Economic and Monetary Demographics

  • Wealth of Households

  • Distribution of income

The most important factor is the amount at which traders develop their spending as an increment in their income. It is recognized as the negligible affinity to expand. It may happen that somebody receives additional compensation of £1500 in a particular year and they burn through £ 1000, in such a manner the peripheral inclination to expand is £1000/£1500 = 0.67. The remaining part of peripheral inclination to spare is 0.33 (Kacperczyk, 2013). 
The direct way to recollect is that the peripheral inclination to buyer summed to the minimal penchant to raise the spare up to 1. Generally, it is considered that individuals who have fewer salaries have a high tendency to spend. All this matters when the administration reports changes the level of welfare advantages and tax collection.

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  • Duygan?Bump, B., Parkinson, P., Rosengren, E., Suarez, G. A., & Willen, P. (2013). How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset?Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The Journal of Finance, 68(2), 715-737.

  • Fricke, D., & Lux, T. (2015). Core–periphery structure in the overnight money market: evidence from the e-mid trading platform. Computational Economics, 45(3), 359-395.

  • Abbassi, P., & Linzert, T. (2012). The effectiveness of monetary policy in steering money market rates during the financial crisis. Journal of Macroeconomics, 34(4), 945-954.

  • Carpenter, S. B., Demiralp, S., & Senyuz, Z. (2016). Volatility in the federal funds market and money market spreads during the financial crisis. Journal of Financial Stability.

  • Berkowitz, J. (2015). Money Market Mutual Funds: Stress Testing and the New Regulatory Requirements.

  • Kacperczyk, M., & Schnabl, P. (2013). How safe are money market funds?. The Quarterly Journal of Economics, qjt010.

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