Monetary Policy: Economic Analysis

Monetary Policy: Economic Analysis

Overview

In 3–4 pages, explain how declines in real estate values, subprime mortgage loans, and mortgage backed securities relate to the financial crisis of 2007–2008. Analyze the idea that monetary policy can exhibit cyclical asymmetry.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Analyze the economic environment and the role of the federal government in establishing fiscal and monetary policies.
  • Explain how declines in real estate values, subprime mortgage loans, and mortgage backed securities relate to a financial crisis.
• Competency 3: Evaluate the role of ethics and regulatory considerations on economic decision making in global organizations.
  • Analyze the notion that monetary policy can exhibit cyclical asymmetry.
• Competency 4: Communicate in a manner that is professional and consistent with expectations for members of the business professions.
  • Correctly format citations and references using current APA style.
  • Write content clearly and logically with correct use of grammar, punctuation, and mechanics.

Context

This assessment examines the federal banking and financial institution system, and the monetary policy that the Federal Reserve Bank (“the Fed”) uses to create and control the supply of money, interest rates, and inflation. The tools of monetary policy used by the Fed consist of controlling the required reserves of commercial banks, buying and selling government securities (bonds) in the market, and setting the rate at which banks can borrow from the Fed. Actions by the Fed determine indirectly the interest rates for mortgages, car loans, and credit cards.

Questions to Consider

As you prepare to complete this assessment, you may want to think about other related issues to deepen your understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of your professional community. Note that these questions are for your own development and exploration and do not need to be completed or submitted as part of your assessment.

Search the Internet for the Web site of the corporation of your choice, and find that corporation’s annual report to stockholders. Then, answer the following:

• Does the company have characteristics of a perfect competition, monopoly, or oligopoly?
• How does competition in this industry help or hurt consumers?
• What does the annual report say about the corporation’s view of future business challenges and the market in which it operates?
• Does this corporation see long-run adjustments?
• Consider both the microeconomic and macroeconomic views. Do you agree with the corporation’s view? Why or why not?

Resources

Suggested Resources

The resources provided here are optional and support the assessment. They provide helpful information about the topics in this unit. You may use other resources of your choice to prepare for this assessment; however, you will need to ensure that they are appropriate, credible, and valid. The MBA-FP6008 – Global Economic Environment Library Guide can help direct your research. The Supplemental Resources and Research Resources, both linked from the left navigation menu in your courseroom, provide additional resources to help support you.

The Effects of Government Policies

The resources below provide information about the effect of U.S. government policies on the economic environment.

• Paul Solman’s video, The Federal Reserve Bank’s Primary Role | Transcript, from the McGraw-Hill Web site. Retrieved from http://www.mhhe.com/economics/solman_video_mov/steer_fedreserve.mov
• S. Department of the Treasury. (n.d.). National debt. Retrieved from https://www.treasury.gov/resource-center/faqs/Markets/Pages/national-debt.aspx
• Amadeo, K. (2016). 2008 financial crisis: Causes, costs and could it reoccur? Retrieved from https://www.thebalance.com/2008-financial-crisis-3305679
• (n.d.). Time lags and targets. Retrieved from https://www.boundless.com/users/233416/textbooks/money-banking-and-international-finance/monetary-policy-tools-14/monetary-policy-tools-35/time-lags-and-targets-124-15222/
• McConnell, C., Flynn, S., & Brue, S. (2015). Macroeconomics (20th ed.). New York, NY: McGraw-Hill Education.
  • Chapter 14, “Money, Banking, and Financial Institutions,” pages 313–331.
  • Chapter 15, “Money Creation,” pages 335–348.
  • Chapter 16, “Interest Rates and Monetary Policy,” pages 351–377.
• Assessment Instructions

Businesses are as vulnerable as individuals to the economic upswings and downturns of a nation’s economy. Savvy business leaders understand how to see the economic trends, as well as how those trends will affect the business.

Requirements

There are two parts to this assessment. Be sure to complete both parts before submitting.

Part I

• Explain how each of the following relate to the financial crisis of 2007–2008:
  • Declines in real estate values.
  • Subprime mortgage loans.
  • Mortgage-backed securities.

Part II

• Analyze what economists mean when they say that monetary policy can exhibit cyclical asymmetry.
  • How does the idea of a liquidity trap relate to cyclical asymmetry?
  • Why is the possibility of a liquidity trap significant to policymakers?

Organize your assessment logically with appropriate headings and subheadings. Support your work with at least 3 scholarly or professional resources and follow APA guidelines for your citations and references. Be sure to include a title page and reference page.

Additional Requirements

• Include a title page and reference page.
• Number of pages: 3–4, not including title page and reference page.
• Number of resources: At least 3.
• APA format for citations and references.
• Font and spacing: Times New Roman, 12 point; double-spaced.