Read Chapter 36 (Interest Rates and Monetary Policy) and Read Chapter 40 (International Trade)
For Each chapter
need (3) small paragraphs that confused you with 3 supporting bullet points
(1) small paragraph that surprised you with 3 supporting bullet points
Videos
Write 1 Paragraph that you learn from the videos with 3 supporting bullet points.
FYI – Pt 1 and Pt2 with the same title are treated as one video
Interest Rates and Monetary Policy/ International Trade
Name
Institution
Course
Instructor
Date
Interest Rates and Monetary Policy/International Trade
Chapter 36 (Interest Rates and Monetary Policy)
• The inverse relationship between rates of interest and money demanded
The last paragraph on demand for money, as presented on page 718, talks about an inverse relationship between money that is demanded and their rates of interest. This relationship has been a bit confusing to me in that I earlier thought that when demand for money is high, the interest rates ought to be high as well, but this is not the case, as has been explained in this paragraph. I have, however, understood from it that when interest rates go higher, it becomes costly to avoid capital losses and become liquid. The public hence resorts to holding their money as assets.
• The reserves of commercial banks are reduced when Federal Reserve Banks sells government bonds.
This has been discussed in the last paragraph on page 723 about the selling of securities, and it confused me a lot. I have, however, learned that when the federal reserve banks sell government bonds, the reserves of commercial banks reduce because when securities are sold to commercial banks in the open market by federal reserve banks, those federal reserve banks surrender their securities to commercial banks.
• The concept of repos and reverse repos
The concept of repos and reverse repos has been widely discussed on page 725, and it has confused me a lot. This paragraph highlights that repos are repurchase agreements. It also goes forward to state that reverse repos and repos can serve as collateralized loans, and in this case scenario, government securities are used as collateral (Campbell et al., 2021).
What surprised me.
The last paragraph on page 727 surprised me a lot. I was surprised to note that banks suffering from a deficiency in reserves can lend the amount it lacks to financial institutions that have excessive quantity in reserves.
• Banks with extra reserves can be given positive interest rates whenever they lend overnight loans to reserve deficient banks.
• Overnight borrowing is a common phenomenon for curing deficiencies in reserves.
• These transactions are conducted in a federal funds market where equilibrium interest rates are determined based on supply and demand for reserves.
Chapter 40 (International Trade)
A lot of paragraphs were confusing for me in chapter 40 of the reading material.
• The distribution of product distinctiveness, resources and technology is relatively stable among nations.
This statement that has been discussed in the fifth paragraph on page 806 was confusing. The following sentences state that a change in distribution, the success and relative efficiency of nations towards producing goods and selling them also changes (Campbell et al., 2021).
• Difference between comparative and absolute advantage
The difference between comparative advantage and absolute advantage that has been presented in the last paragraph of page 807 was confusing for me. Absolute advantage is earned if a person can efficiently produce a product as compared to their competitor. On the other hand, comparative advantage is earned through the production of goods at lower opportunity costs.
• Absolute advantage of the US over Mexico
This concept has been presented in the fourth paragraph of page 808. Despite having an equal labor force, the US is still considered an absolute advantage over Mexico (Campbell et al., 2021).
What was surprising.
It was surprising to note that the vegetables in Mexico have a lower domestic opportunity cost than the United States. Despite all this, Mexico still has a comparative advantage in vegetables and is urged to produce vegetables.
• In Mexico, half a ton of beef has to be sacrificed for one ton of vegetables to be produced.
• In the United States, one ton of beef has to be sacrificed for a ton of vegetables to be produced.
• If the United States had resorted to producing vegetables, the world would have to give up more beef to obtain a ton of vegetables.
Videos
I have learned a lot of things from the Mark Buzby videos. The first video talks about the demand and supply of money. From this video, I have learned about the transaction demand for money, asset demand for money, purchasing power and characteristics of money. The transaction demand for money refers to the money required by an individual, nation or company to cover their needs. The purchasing power of money is the value of a country’s currency. Some major characteristics of money are durability, acceptability, divisibility, limited supply and portability.
The second video talks about federal reserves, and from it, I have learned that the federal reserve is responsible for managing the money supply within the United States. The third video talks about Average demand and Average Supply models. From it, I have learned that a tight money policy helps when there is inflation. The fourth video elaborates more on trade. From this video, I have learned that trade is the concept of buying and selling goods. The fifth video talks about protectionism. From this video, I have learned that protectionisms are the act of the government telling its citizens how to trade. In the sixth video, a lot has been expounded on on free trade. From this video, I have learned that free trade increases the production of goods between countries. In the last video, Mark Buzby has tackled fair trade. From the video, I have learned that fair trade is an essential element of free trade. It stops more powerful economic countries from exploiting those with smaller economies.
Reference
Campbell, McConnell., Stanley, Brue., and Sean Flynn. (2021). Economics (chapter 36 and 40).