Pick any two questions (each question should be half a page) 21. How is the Fed...

Pick any two questions (each question should be half a page)

21. How is the Fed structured so the focus of their policies is on the long term health of the U.S. economy, not political gain (which tends to focus on shorter term goals due to election cycles) or personal gain?

22. Zimbabwe’s inflation rate in July 2009 was reported at 1 percent a month. Last year, Zimbabwe’s annual inflation rate was more than 231,000,000 percent, a kilo of tomatoes cost 61 billion Zimbabwe dollars. Compare inflation in Zimbabwe in 2009 with that in Germany in 1923. Why did Germany print money in 1923 and create hyperinflation? Why is Zimbabwe printing less money today?

23. Baby boomers will result in a massive increase in the Social Security and Medicare benefits that need to be paid. The government’s Social Security and Medicare obligations are a debt (estimated at $80 trillion) that must be considered when developing a path towards fiscal sustainability. What are the options for addressing the Social Security and Medicare time-bomb? 24. Explain why Australia and Canada have the smallest budget deficits as a percent of GDP.

25. What went wrong in Japan and the United Kingdom that resulted in large deficits?

26. Design specific fiscal policy you would recommend, given the current state of the economy. What are the demand and supply-side effects of the policies you are proposing? How long will it take for these policies to have their desired effects? What are the short and long-term effects of these policies?

27. What is financial stability, and what actions has the Fed since 2007 in pursuit of financial stability?

28. Compare and contrast the Fed’s monetary policy in the Great Depression and the 2008-2009 recession.

29.Examine China's decision to retain fixed foreign exchange rates.

Expert Solution

Answer to Question 21)

The Federal Reserve has been formulated on a policy, wherein, it is not subject to any government control through the congress. Even though the Governors of the reserve are nominated by the government, yet what keeps them protected from political bias is the fact they have long tenures extending up to 14 years. Further, the fact that their decisions cannot be monitored or controlled by the government make them an independent organization. Their credibility arises from their own actions which have led to the solution to all major problems in the economy as in the case of the depression of 2008.

Thus, the lack of direct government control has left them away from political interests. Further people working in the Federal Reserve are employees on a salary and do not directly benefit from any profit or loss that takes place. Therefore, the very structure of the Federal Reserve that makes it independent in nature meaning that its decisions cannot be controlled by the congress keep it away from politics of all kinds.

Please feel free to ask your doubts in the comments section if any.

Rahul Sunny answered 6 months ago

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