Money Train Activity
December 15, 2013
XECO 212
Scenario 1- A NAFTA dispute has greatly curtailed exports from our economy. This has caused the economy to go into a downturn! Use Reserve Requirements to increase the rate of economic growth.
In 150 to 200 words, explain your reasoning for the way you are planning on using Reserve Requirements. Be sure to address the following:
1. How Reserve Requirements affect the economy.
2. How your action will affect economic growth.
3. Why it is important to increase economic growth.
4. Your rationale for the use of Reserve Requirements.
The Federal Reserve can raise or lower the reserve requirements. When the reserve requirement is raised, the amount of money banks are required to keep in reserve is increased, and this reduces the money supply, and as a result, interest rates rise. This is done to slow the amount of economic growth. When the reserve requirement is lowered, it decreases the amount of money banks are required to keep in reserve. This increases the money supply, and results in lower interest rates.
My action is to lower the reserve requirement, which will increase the money supply and lower interest rates, stimulating growth in the economy.
It is important to increase economic growth to prevent the economy from going into a downturn, reduce unemployment from rising, and encourage stable growth of GDP and inflation.
My choice to lower reserve requirements is to encourage economic growth by increasing the money supply and lowering interest rates.
Scenario 2- A scientific discovery has made it cheaper to produce consumer electronics. This has led to a rapid rise in the purchase of household electronics. This has caused the economy to grow rapidly! Use the Discount Rate to slow the rate of economic growth.
In 150 to 200 words, explain your reasoning for the way you are planning on using the Discount Rate. Be sure to address the following:
1. How the Discount Rate can affect the economy....