Principles of Macroeconomics
Principles of Macroeconomics
Assignment Instructions: I need help responding to a comment from a student and the professor on 2 of my discussion posts. Also, I need help responding to 4 students\’ discussion posts. Each response should be a minimum of 100 words.
*My first discussion post
Hello everyone,
Money is a medium of exchange between different entities and individuals. Money is taken to be representative of value (Amacher & Pate, 2019). In addition, money is used as a store of value and an accounting unit. For example, a 10-dollar note has less value than a 20-dollar note. Money should not be considered the root of all evil. There are upright people who use money to create a positive impact in their lives and that of the community, for example, a person will save money to build a house for their families. Money becomes evil when the person handling it does not have a strong value system. Such a person will engage in vices such as embezzlement, corruption, and stealing. People who use money for their selfish gains aid in perpetuating the misconception that money is the root of all evil.
Paper and commodity money have several differences. Commodity money possesses some inherent value, given the composition of precious metals used to make it (Amacher & Pate, 2019). Fiat money lacks intrinsic value and is backed by the faith of the people. Another difference is that commodity money is less impacted by inflation compared to fiat money. That is because the government has less control over commodity money. The other difference is that fiat money spurs quicker economic growth than commodity money since the government can easily manipulate it. Paper money can be utilized validly as money once it is recognized as legal tender by a regulation from the government.
A credit card cannot be considered as money. The function of a credit card is to offer an effective way of accessing credit from a bank or other lending institutions (Amacher & Pate, 2019). When a person uses their credit card, they are borrowing money they will have to pay back eventually. A bank or lending institution can choose to cancel a credit card and render it worthless. Cryptocurrencies such as Bitcoin and Ethereum are money. They are representative of value and can be used as accounting units. The uniqueness of cryptocurrencies is that they exist digitally and are not regulated by a government institution. Since many people transact using cryptocurrency, there is faith in its value.
Reference
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Bridgepoint Education.
*Respond from student-
Sonia,
Hello. Thanks for your post, I always read them. Your post gives a good look at the functions and definitions of money, similar to many aspects of my discussion. We both agree that money serves as a medium of exchange, a store of value, and a unit of account. Additionally, we both reject the idea that money itself is the root of all evil, instead pointing out that it is the misuse of money by individuals with weak value systems that leads to unethical behavior.
One key difference in our posts is your emphasis on commodity money being less impacted by inflation compared to fiat money. This is a great point, as the stability of commodity money is due to the government’s limited control over it. You also wrote that fiat money can spark quicker economic growth due to government manipulation, which is an important consideration, especially in discussions involving the government.
Our views on credit cards are consistent. We both state that they are not money but a means of accessing credit. Your explanation about the potential for a bank or lending institution to cancel a credit card adds an important layer of understanding about the limitations of credit cards as a financial tool.
On the topic of cryptocurrencies, we have some differences. While I argued that cryptocurrencies possess characteristics of money but fall short in areas such as volatility and limited acceptance, you state that cryptocurrencies like Bitcoin and Ethereum are indeed money. Your point about the faith people place in cryptocurrencies, and their digital nature is well-taken, though the volatility and regulatory uncertainty still create challenges with their widespread acceptance as money.
Thanks again for your post, great job.
*My second discussion post
Hello everyone,
The Federal Reserve monitors unemployment and inflation in different ways. Firstly, the Federal Reserve will control the money supply in the economy. Changing the fractional reserve among banks will impact the money circulating in the economy (Amacher & Pate, 2019). Consequently, the Federal Reserve can keep inflation in check. The second approach is through effecting changes in interest rates. In case the economy grows too rapidly, the Federal Reserve will raise interest rates to keep inflation in check. If the economy grows too slowly, the Federal Reserve will raise the interest rates to address unemployment.
There exist different pros of utilizing expansionary and contractionary monetary policy tools during a depression. For instance, the tools help lower interest rates, which results in a reduction in consumer borrowing costs (Amacher & Pate, 2019). Low interest rates increase consumer spending power, which bolsters the economy. The cons associated with expansionary and contractionary monetary policy tools are the possibility of an increase in inflation levels and a reduction in people’s purchasing power.
There are pros to using expansionary and contractionary monetary policy tools during strong economic growth. For example, addressing high inflation rates using the tools aids in keeping inflation under control (Amacher & Pate, 2019). Also, using monetary policy tools makes it easy to implement economic changes. However, there are cons associated with using expansionary and contractionary monetary policy tools. For instance, the monetary policy tools only result in short-term financial gains. The economic gains can only be sustained in the short term.
Open market operations (OMO) are the most effective of the monetary policy tools. The Federal Reserve will buy and sell securities in the open market (Amacher & Pate, 2019). Consequently, the Federal Reserve can increase money supply in the economy. A benefit of OMO is that the Federal Reserve attains effective control of the money supply in the economy. Therefore, the Federal Reserve can influence short-term interest rates, helping to manage inflation, employment rates, and the rate of economic growth. Another benefit of OMO is flexibility in terms of timing and volume of operations.
Reference
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Bridgepoint Education
*Response from Professor-
Sonia –
I hope you are having a great weekend! You made some great points regarding the many tools that the Federal Reserve uses to prop up our financial system during times of weakness and influence the operations of other private banks. You did a great job exploring the overall role of the Federal Reserve and its many functions.
Thinking outside the box a bit here, could a modern economy like ours here in the US function well without a central bank? What would be the pros and cons of removing the Fed?
– Instructor M
*Student #1 Discussion post-Hunter
Hello, class!
Define money and describe its functions.
“Money” can best be defined as a medium of exchange that is used to purchase products, whether that may be a need or a want. Money can be put into a savings/checking account to be used at a later time, it gives value to the products that you own (or plan to own), and it can also help to relieve any loan debts. (Amacher, R. & Pate, J.)
Is money a root of all evil? Why or why not?
I do not think that money is a root of all evil, but money is also not a positive benefactor, either. Money is great for being a medium of exchange, but I believe that some people will do whatever it takes to get money whether it be politicians, those struggling, or those who are simply just greedy. Money itself is not the root of all evil, simply just the people who choose to do evil for money that make it seem like it could be considered a root of all evil.
How are paper money (fiat) and commodity money different? How can paper money be validly used as money?
Commodity money has value based on the contents of the materials that the product is made of. Paper money, or fiat, has value based on what the government says the monetary value is. Paper money is validly used as money because you can verify the authenticity of paper much easier than could verify most of the materials present in a product.
Are credit cards money? Why or why not?
Credit cards are not money. Credit cards are simply just financial tools that allow you to borrow money that you can pay back at a later time. Think of credit cards as a loan, almost. Credit cards will have a spending limit, prohibiting you from overcharging the credit card, whereas money does not and is still limited. Credit cards will have to be paid off with money. Another determining factor of credit cards is that they can also be considered a liability on the ledger side.
Are cryptocurrencies such as Bitcoin, Ethereun, Ripple, Litecoin, Monero, money? Why or why not? Discuss thoroughly.
Cryptocurrencies could be considered as money depending on how you look at it, because they could be considered as a medium of exchange. Although, some businesses will not take cryptocurrencies as a medium of exchange. The value of cryptocurrencies also fluctuates, making it much harder to be able to effectively pay for goods and services.
References
Amacher, R. & Pate, J. (2019) Principles of macreconomics (2nd ed.) Bridgepoint Education
*Student #2 Discussion post-Carlee,
Week 4 Discussion 1: Money and Its Functions
Describe money and its functions.
Money is a type of currency by definition, and it\’s used to pay for products and services. Its purpose is to act as a medium of exchange for products and services between individuals or businesses. It also acts as a means of assigning values to things and keeping track of their worth. could be used as a trade instrument to transfer in-demand natural resources from one nation to another.
Is money the root of all evil? Why or why not?
Growing up, I assumed that the answer to the question was yes because I had heard that saying all my life. Having lived as long as I have, I\’ve come to believe that money isn\’t always bad—what money does for people in need is what makes it so. People who feel the need for it will resort to wickedness in order to get it or more of it. Money is so highly valued in our society that many believe it to be the ultimate good. We utilize money as a tool to get the things we want and need. Money is just a tool; it helps us to enhance our lives by allowing us to buy things we want or need.
How are paper money (fiat) and commodity money different? How can paper money be validly used as money?
The government considers paper money to be whatever it may be. For instance, according to Amacher (2019), the US dollar bill is “legal tender for all debts, public and private.” Paper money is consequently recognized as a legitimate form of payment since it is approved by the government.
Are credit cards money? Why or why not?
Yes, credit cards are money in my view, but the fact that they take the shape of loans makes them problematic. You ultimately have to pay that back plus interest even though you can still afford the things you want. There are great ways to build personal credit by choosing a different route.
Are cryptocurrencies such as Bitcoin, Ethereun, Ripple, Lite coin, Monero, money? Why or why not? Discuss thoroughly.
For me, cryptocurrency has always seemed like a scam—like something being marketed as the next big thing in technology. Regretfully, I have heard of investors who have put money into these currencies but have not received any returns. Cryptocurrency can be used as money if both parties agree to it, however the United States does not recognize it as legal cash. It functions somewhat like virtual or digital currency, akin to credit cards.
References:
Amacher, R., & Pate, J. (2019). Principles of Macroeconomics (2nd ed.). Bridgepoint Education.
*Student #3 Discussion Post-Robert,
Hello everyone,
The Federal Reserve oversees employment, prices, and output with the use of money supply and interest rates. The FED accomplishes these goals by having three main functions to manipulate money supply and they are changes in the reserve ratio, open market operations, and changes in the discount rate. Changes in the reserve ratio are when the FED changes the maximum size of the money supply to make sure banks have ready funds when depositors try to withdraw. An increase in reserve ratio means a deficit of excess reserves and reduction of the size of the deposit multiplier. A decrease in reserve ratio means it creates required reserves from extra reserves and increases the amount of the deposit multiplier. Open market operations is when the FED purchases sales and bonds on the public market to control the growth or reduction of the bank reserves. Changes in the discount rate is another great tool in monetary policy as it can give a bank a higher or lower interest rate. This tool can be used as a signal in the economy as when the discount rate is increased it shows that it wants to lessen the spending in the economy and an increase will entice the economy to spend (Amacher & Pate, 2019).
The pros and cons of using contractionary and expansionary monetary policy tools under a recession or depression and robust economic growth is that when in a downturn in an economy the FED through expansionary can lower interest rates and increase money supply alleviating a recession to become a depression, increasing demand from lower prices and then in turn creates service that produces more supply but can make inflation grow and hurts a booming economy. Contractionary policies on the other hand lower spending from banks lending less but help lower inflation along the way (Amacher & Pate, 2019).
The most appropriate tool among the different monetary policies available today is the open market operations from expanding the money supply by the FED can borrow or purchase Treasury bills from public banks and the central bank will add money to the account creating reserves that banks have to manage, when the FED sells or lends Treasury bills will lead to the reduction of money supply (Board of Governors of the Federal Reserve System, n.d.). This tool is easy to use and can be redacted at any time. It helps the economy now by the FED can sell their treasury bills to the banks or the depositors to reduce lending to lower the fast-growing inflation we have right now.
References
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Bridgepoint Education.
Board of Governors of the Federal Reserve System. (n.d.). Monetary policy: What are its goals? How does itLinks to an external site. work?Links to an external site. Retrieved from https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its- goals-how-does-it-work.htm
*Student #4 Discussion Post-Nathan,
Hi class,
The Federal Reserve achieves its goals of maximizing employment, stabilizing prices, and lowering long-term interest rates using a variety of monetary policy measures. The major instruments are open market operations, discount rates, and reserve requirements. Open market operations involve the purchase and sale of government securities in order to alter the money supply. Lowering or raising the discount rate influences how much banks may borrow from the Fed, hence altering their lending possibilities. Adjusting reserve requirements changes the amount of money banks must have in reserve, affecting the amount they can lend.
Using contractionary and expansionary monetary policy has varying impacts depending on the economic situation. During a recession or depression, expansionary policies, such as decreasing interest rates or purchasing government assets, are intended to boost the money supply, encourage borrowing and spending, and revive economic activity. The advantage is that it can help lift the economy out of a downturn. However, the disadvantage is the possibility of inflation if the money supply expands too quickly.
During periods of strong economic development, contractionary measures such as hiking interest rates or selling government assets seek to lower the money supply, limit excessive borrowing and spending, and keep the economy from overheating. The advantage is that it can help manage inflation. The disadvantage is that it may reduce growth too much, potentially leading to increased unemployment.
Open market operations are widely regarded as the most effective and flexible monetary policy tool. They enable the Federal Reserve to accurately control the money supply and influence short-term interest rates. For example, by acquiring government assets, they dd liquidity to the banking system, promoting lending and investment. Selling securities, on the other hand, reduces liquidity, which aids in cooling an overheated economy.
The Federal Reserve uses these tools to navigate challenging economic conditions, with the goal of promoting long-term development and stability through a balanced approach. While each instrument and strategy has advantages and disadvantages, open market operations are particularly effective at managing the economy\’s needs.
Reference:
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Bridgepoint Education.
Monetary Policy: Stabilizing prices and output. (2021, June 15). IMF. https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Monetary-Policy
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