The \"reading\" for this module can either be read or listened to. The link belo

Question

The "reading" for this module can either be read or listened to. The link below takes you to a podcast interview with Allan Meltzer, another prominent macroeconomist. A partially summarized transcript of the entire interview can be found below the accompanying links to the various studies or articles mentioned during the podcast. Meltzer and the interviewer, Russ Roberts, cover a lot of ground, so the questions I have for you refer to a variety of related topics I think you will find interesting. Listen to the podcast, or read transcript found here

Meltzer EconTalk.org Interview http://www.econtalk.org/archives/2008/05/meltzer_on_the.html

Next, answer these questions:

1. What was the gold standard? How is monetary policy conducted under a gold standard? What are the virtues of a gold standard, according to Meltzer? What is a shortcomming of a gold standard?

2. Describe in a nutshell why the Fed is so important. What does the Fed do? Again, try to be brief.

3. Is the Fed as independent from political influence as it is supposed to be?

4. Describe in one or two sentences what the "Great Moderation" was?

5. How does the Fed "finace the government's debt"? How does that work, exactly?

6. In one sentence describe the so-called Taylor Rule. This rule is considered by many to be the cornerstone of modern Fed policy dring non-crisis periods; that is, during normal times. However, no Fed president will ever admit that they strictly follow the Taylor Rule at any time (because the Fed doesn't want investors or firms to think they are strictly following any rule-based policy). It is named after John Taylor, the economists whos congressional testimony your read for the previous module.

Explanation / Answer

1) The system of monetary organisation under which the value of a country money is legally defined as a fixed quantity of gold, and the domestic currency takes the form of gold coin and or notes convertible on demand into gold at legally determined rates.

Free buying and selling of gold internationally is not permitted by various governments.As such,it is not possible to fix par value in terms of gold content.

2) Fed promotes the monetary policy of the nation to get maximum employment, stable prices and moderate interest rate in the long term.secondly, fed promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole.

3)Fed promotes consumer protection and community development through consumer focused supervision and examination, research and analysis of consumer issues and community economic development activities.

4) Great moderation is the name given to the period of decreased macroeconomic volatility seen in the u.s since 1980s.During the period standard deviation of quarterly real GDP declined by half and the standard deviation of inflation declined by two thirds.

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