1.Why should the govt monitor money supply? If we are in recession today, which
ID: 1248136 • Letter: 1
Question
1.Why should the govt monitor money supply? If we are in recession today, which one of the three tools of monetary policy would you suggest and why (you must select from one of the 3 Monetary tools: Reserve requirements, Discount rates, or Open-Market operations)? And explain in detail how your choice of tool would help the economy?2.How would each of the following factors given below affect a nation's growth potential? Analyze each factor and predict how it would affect a nation's growth?
a. Legal protection of private property.b. High tax rates. c. Free trade. d. Government price controls. e. Judicial corruption.
Explanation / Answer
I believe I already answered A. Discount Rate is a form of lowered interest rate. Thus, what I said before is correct. 2. Legal protection of private property: Allows people to have a supply and demand for the goods they produce and earn a profit and allows for national growth. For example consider a farmer who did not have rights to the oranges he produced. People who drove by his farm could just take them. As such the farmer could not earn a living and would not produce any oranges. High tax rates: negatively effects growth. A tax on a firm causes them to raise their prices. This is passed on to the consumer, who then buys less. Then, in response, the firm will produce less to accommodate the new demand. Free trade: Allows for more growth. It causes a larger demand for domestic goods in foreign countries. Thus, domestic firms will increase output. Government Price controls: Negatively effect national growth.(see free trade and taxes) Judicial Corruption: Negatively effects growth because property rights are not ensured.
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