Question

1. Describe the Fed-Treasury Accord. Why was it implemented? What impact did it have on the effectiveness of monetary policy?

2. Identify the various ways in which the Federal Reserve is insulated from political influence.

3. Describe the conditions leading up to the 1981-82 recession.

4. What was the role of monetary policy in contributing to disinflation in the late 1970s and early

1980s?

Answer 1

1. A 1951 agreement between the United States Secretary of the treasury and the Federal Reserve board on the government financing and monetary policy the Accord represented the solution of major conflict between the treasury and the friend over world war 2 Finance in perhaps more significantly the Accord give the Federal Reserve Independence from the treasury the Federal Reserve first acquired responsibility for setting monetary policy in 1933 monetary policy the Federal Reserve is able to manipulate the money supply and affect the interest rates while some people believe that the federal is necessary to smooth out the ups and downs in the economic others believe that its policies are in factor responsible for the booms and the bursts of the business cycle during World War II the Federal Reserve place to keep interest rates on treasury bills fixed at 0.357 5% continue to support government boring after the world war ended despite the fact consumer price index Rose 14% in 1947 the reluctance of Federal Reserve to continue monetizing the deficit became so great that in 1951 president invited the entire Federal Open Market Committee to the White House to resolve their differences

2. BCom restructure the said to be independent within the government that is also the fed is accountable to the Congress and its poles are said by law its conduct of monetary policy is insulated from day to day political pressure the primary justification for an independent Federal Reserve many people are surprised to learn that the central bank of United States operates in part independently of the government the combined public in the private structure of Federal Reserve controversial especially in the aftermath of financial crisis of 2007 and the monetary decisions of the Federal Reserve do not have to be ratified by the president the Federal Reserve receives no funding from Congress and the members of board of governors who are appointed these terms do not inside with presidential terms however the Federal Reserve is subject to oversight by congress which aims to ensure it achieves the economic objectives of maximum employment and stable prices and the fed chair must submit a semi annual report on monetary policy to Congress the primary justification for an independent Federal Reserve is the need to insulate .

Advocates of autonomy argue that an independent Federal will better address long term economic objectives independence day also make it easier to execute policies that a political unpopular but survey greater Public Interest critics argue that it is unconditional for Congress to assign a constitutional power to an independent government agency according to the constitution government has power to coin and regulate its value however some argue that search delegation is fundamentally unconstitutional opponents of Federal Independence also suggest that it is undemocratic to have an an elected agency uncountable to the United States public dictating monetary policy.

3. The early 90s recession was aware Global economic recession that affected most of the developed World in the 1970 San Ali 1980 the United States in Japan excited the recession relatively early but high unemployment would continue to affect the oecd Nations until at least 1985

1978 inflation began to intensify reaching double digits in 1979 the consumer price index Rose considerably the increases where large be attributed to oil price shops of 1979 and 1980 all the four consumer index which excludes energy and food also posted large increases productivity real gross national product and personal income remained essentially unchanged during the period while inflation continue to rise the phenomenon known as stagflation came in order to combat rising inflation recently appointed chairman of the Federal Reserve elected to increase Federal funds rate following the October meeting the Federal Open Market Committee the federal fund rates increase gradually this caused in economic recession begin in 1980 the federal funds were lowered considerable recession occurred beginning as a result of increasing Federal funds rate credit became more difficult to obtain for car and home loans this cause severe contractions in manufacturing and Housing which were dependent on the availability of consumer credit most of the jobs lost during the recession entered around groups producing Industries while the service sector remain largely intact

4. This inflation is a short-term slowdown in the rate of price inflation it is used to describe instances when the inflation rate has reduced marginally over the short term although it is used to describe periods of slowing inflation inflation should not be confused with deflation which can be harmful to the economy disinflation is commonly by the Federal Reserve to describe period of showing inflation monetary policy has a significant role in it this several main reasons that cause an economy to experience deflation in if a central bank decides to impose a tighter monetary policy and the government starts to sell of some of it security it could reduce the supply of money in the economy causing a Dee Flame Tree effect this happened in the 1980 Nathalie 1978 during 1970 the US economy experience one of the longest period of disinflation during 1970 is the Rapid price of disinflation came to be known as great inflation with price is increasing more than 110% during the DK the annual rate of inflation top doubt that 14.76 in the early 1980 following the implication of aggressive monetary policy by the Federal Reserve to reduce inflation the danger that is inflation presence is when the rate of inflation falls near 20 the annual rate of inflation top doubt at 14.76 in 90 people in the implementation of aggressive monetary policy by the Federal Reserve to reduce inflation the increase in prices snowed in 1980 rising just 59% of the period in the decay of 1980 prices Rose 32% followed by a 27% increase between 2000 and 2009