Monetary Policy & International Finance and the Exchange Rate Essay

Monetary Policy & International Finance and the Exchange invest - Essay ExampleThe supply curve analysis indicates that an increase in the amount of nonborrowed reserves implies thither provide be right shift in the supply curve. The implication is that the governemnt funds rate will not rise any further and a constant value may be achieved. As a result, the open market purchase will result into a rise in the financial base and hence the monetary supply.The central bank habituates rediscount operations which allows the banks to borrow from the central as recess of its checks and measures on economic stability. fleck this advancement is crucial for ensuring that there is no economic recession, there is picture that there is danger when the central banks lends to other(a) banks. One problem with this operation is that it prevents banks that would have failed from failing. While the adversity of bank may be a sign of economic instability, there are many other causes for the co llapse of banks. For instance, poor management strategies within a bank may result to its failure (Kashyap & Stein, 2004). While there is need to support banks and to prevent them from collapsing, there are times when lending to such banks does not solve the problem. Banks that have weak management should be streamline their operation rather than lend them, an approach that may not its problems. Therefore lending to banks that are in the verge of collapsing poses danger to the public as they feel that such a bank is stable while it dependent on borrowing.III. Compare the use of open-market-operations, central bank lending facilities (rediscounting), and changes in reserve requirements to control the money supply on the following criteria flexibility, reversibility, effectiveness, and speed of implementation.The open-market operations are one of the most flexible approaches of controlling the money supply. Since this method is beneath the control of the government, it is possible to use it to fine tune the market and to achieve