MACRO ASSIGNMENT # 5A

a. Bank notes, coins, precious materials, gold/silver

deposits, treasury bonds, government guaranteed mortgage
securities

b. There are 12 federal reserves. New York is the location

of the central Federal Reserve stipulated by the Banking Act
of 1935, the President of the United States appoint the
seven members of the Board of Governors; they must then be
confirmed by the Senate and serve four year terms.

The Chairman and vice-chairman may be chosen by the

President from among the sitting Governors for four-year
terms; these appointments are also subject to Senate
confirmation. By law, the chair reports twice a year to
Congress on the Federal Reserve's monetary policy
objectives. He or she also testifies before Congress on
numerous other issues and meets periodically with the
Treasury Secretary.

c. The trust refers to belief of public on the central bank.

The federal reserve ensures the trust by having a fixed
reserve ratio, i.e. by backing a portion of the currency by
Gold.

d. The RBI takes the following measures to stop counterfeit

of currency:

 Upgrading banknote security features

 Public awareness campaigns to educate citizens

e. Although the Federal Reserve does not own any gold, the
Federal Reserve Bank of New York acts as the custodian of
gold owned by account holders such as the U.S. government,
foreign governments, other central banks, and official
international organizations. No individuals or private
sector entities are permitted to store gold in the vault of
the Federal Reserve Bank of New York or at any Federal
Reserve Bank.

MACRO ASSIGNMENT # 5B

Inflation refers to an increase in the price levels of goods

and services due to the increase in money stock; simply the
money stock grows faster than the productivity in an
economy.

Governments and Central Banks influences the money supply

nowadays by controlling interest rates for interbank lending
rather than just printing and destroying money. The
traditional money supply control method is not used as
history has many examples of money-printing disasters
leading to hyperinflation and mass recession.

Adjustments of interest rates impacts the levels of

borrowing, saving and spending in an economy.

Ex. A rise in interest rates leads to people keeping their

money in the banks or their deposit accounts to earn more
and delays their current consumption to future consumption,
leading to demand for goods and services to fall, which
brings balance back to Productivity/Money supply equation.
Also, higher interest rates mean that borrowing is more
expensive, hence borrowing also drops, means the new money
supply coming in the economy also reduces. Central Banks can
also control money supply through Purchase and Sale of
Government Securities/Bonds and also by changing the Reserve
requirements for commercial banks.

Ceteris paribus, without any change in money supply, there

can’t be a change in inflation. I agree with the broad
statement that only monetary policy can cure inflation?