Page 540 - Introduction to Business

514 PART 5 Finance

10. The quantity theory proposes the equation of rescue of insured depositors potentially lead to
exchange to show the relationship between the greater risks at the bank in the future?
financial system and the economy. Use this 3. Some countries in South America have begun
equation to explain how the growth rate of money pegging their currency to the European euro. How
can affect the inflation rate and the growth rate of could you know the value of these South American
the real economy. currencies?
11. The monetary policy framework consists of policy 4. The Federal Reserve used open market operations
tools, operating targets, intermediate targets, and to lower the federal funds rate. How exactly does
economic goals. What are each of these the Fed do this?
components? Do any of the economic goals 5. Due to concern about inflation, the central bank
conflict with one another at times? is expected to tighten control of the money
12. If the central bank wants to lower the federal funds supply. Why would this help to slow down
rate, how can it hit this operating target using open inflation?
market operations? The discount rate? Reserve
requirements?
13. If increasing economic productivity is the main Web Assignments
goal, what should be the main focus of monetary
policy? What if controlling inflation is the main 1. Go to the website for the Board of Governors of the
goal? Today, which goal is more important to Federal Reserve System (http://www.federalreserve
central banks around the world? .gov). Look for information about the Fed and
14. Compare the different kinds of depository check into who the members of the Board are. Now
institutions, including commercial banks, savings click back to the home page and check the breaking
and loan associations, and credit unions. What news items. Pick one of those items and briefly
“back-to-the-future” changes have been occurring summarize the news story.
in the banking industry in recent years? 2. Go to the FDIC website (http://www.fdic.gov).
15. Compare the different kinds of nondepository Look for questions and answers about deposit
institutions, including insurance companies, insurance. Summarize the information there on
pension funds, and investment companies. How deposit insurance coverage.
are defined contribution pension plans different 3. Go to the website for the central bank in a country
from defined benefit plans? If a person is using other than the United States. What are the key
investment companies to manage her or his areas of monetary policy that are being discussed
retirement savings in a defined contribution plan, at the present time for that country?
what are three good rules of thumb to follow? 4. Go to the website of a major financial institution in
the world. You might pick a name from the
newspaper. What kinds of financial services does it
Interpreting Business News provide?
5. Go the website for the Federal Trade Commission
1. What does the following news quote mean? “While (http://www.ftc.gov/bcp/conline/pubs/credit/
some people saving for retirement have moved to idtheft.htm) and find out more about identity
the sidelines in the money market, they will theft. What steps should you take if you are a victim
eventually have to return to the capital market.” of this ethical and criminal problem in today’s
2. Suppose that depositors of a failed large bank were society? How has electronic money affected this
bailed out by the FDIC. How could this government problem?

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