Written Assignment 3
What is the role of the financial system? Name and describe two markets that are part of the financial system in the U.S. economy. Name and describe two financial intermediaries.
The primary role of the financial system is to link the present with the future. Two markets, lenders and borrowers supply funds. Lenders give funds to consumers now as a way to invest their current income into future purchasing power. Borrowers demand loanable funds now, as a way to invest money today in order to gain further capital in the future. Examples of financial intermediaries include banks, mutual funds, and other financial institutions that provide financial services and asset ...view middle of the document...
What does this say about using past price histories to predict future prices?
Efficient markets hypothesis describes the stock market as being efficiently managed and analyzed to reflect all relevant information. Stocks are followed closely by money managers and financial analysts who use company financial statements to determine a fair value on a particular stock.
Using price histories to predict future prices would go against informational efficiency, which states that prices rationally reflect all available information. However, that being said, stock prices change as information changes. If a particular stock is at or near an all-time low, or seems undervalued when analyzing financial statements, this may be a very good entry point to purchase an undervalued stock whose price may again rise.
What are the three categories into which the Bureau of Labor Statistics divides everyone? How does the BLS compute the labor force, the unemployment rate, and the labor force participation rate?
Employed, unemployed, not in the labor force. The labor force is the total number of workers including both employed and unemployed. The unemployment rate is the percentage of the labor force that is unemployed. The labor force participation rate is the percentage of the adult population that is in the labor force age 16 or older.
Why is frictional unemployment inevitable? How might the government reduce the amount of frictional unemployment?
Frictional unemployment is inevitable because people seek and search for jobs that meet their financial needs and provide a self-fulfilling career. As individuals meet their goals and challenges at work, they oftentimes search for new challenges and more rewarding careers, which creates frictional unemployment.
The government may be able to reduce the amount of frictional unemployment by offering public fairs that focus on improving the skills of the labor force. Such as computer skills, speech seminars, or other focused skills that may be relevant to a specific work force and area.
What claims to advocates of unions make to argue that unions are good for the economy?
Advocates of unions argue that unions are a necessary answer to the market power of firms that hire workers. If a particular firm was the dominant employer in a specific area, such as a small town, then those employees or potential new-hires would have to accept the wages and working conditions, or choose not to be employed. Also, unions protect job security and clearly define the different attributes of employment, such as vacations, sick days, health benefits, and so on.
What factors prevent the Fed from controlling the money supply perfectly? Explain how the Federal Reserve would set policy if it needed to contract the money supply? Be sure to include all three Fed tools in your response.
The Fed's monetary policy is made up by the Federal Open Market Committee (FOMC) which meets every six...