Southeast University

School of Business

Assignment On
Macroeconomics

Course Title : Macroeconomics

Course Code : ECO-2114
Section : 1
Program : BBA
Semester : Spring-2020

Submitted To
Md. Shamsuddin Sarker
Lecturer
School of Economics
Southeast University

Submitted By
S.M. Hasibur Rahman
ID: 2018010000055

Submitted Date
June 2th, 2020

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 Part-1
A. In the current year, when real GDP $8.4 trillion, the population is 202 million. Find
GDP per person.

Solution:
Current year
$ 8.4 trillion
GDP per person =
$ 202 million

= $41,584.16

B. In the previous year, when real GDP was $8.0 trillion, the population was 200
million.
Find GDP per person.

Solution:
Previous Year
$ 8 trillion
GDP per person =
$ 200 million

= $40,000

C. Use these two values of real GDP per person in the growth formula to calculate
the growth rate of real GDP per person.

Solution:
To calculate the growth rate of real GDP per person (real GDP per capita) you
would take the ((Real GDP per capita for later year - Real GDP per capita for an
earlier year)/ Real GDP per capita for an earlier year) * 100.

$ 41584.16−$ 40000
∗100
$ 40000

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 = 3.96%
D. What is fiscal policy? Discuss the significance of taxes and government spending
to formulate fiscal policy.

Fiscal Policy:
Fiscal policy is the means by which a government adjusts its spending levels and
tax rates to monitor and influence a nation's economy. It is the sister strategy to
monetary policy through which a central bank influences a nation's money supply.
These two policies are used in various combinations to direct a country's
economic goals.

Taxes and Government Spending:

The two main tools of fiscal policy are taxes and spending. Taxes influence the
economy by determining how much money the government has to spend in
certain areas and how much money individuals should spend. For example, if the
government is trying to spur spending among consumers, it can decrease taxes.
A cut in taxes provides families with extra money, which the government hopes
will, in turn, be spent on goods and services, thus spurring the economy as a
whole.
Spending is used as a tool for fiscal policy to drive government money to certain
sectors needing an economic boost. Whoever receives those dollars will have
extra money to spend – and, as with taxes, the government hopes that money will
be spent on other goods and services.
The key is finding the right balance and making sure the economy doesn't lean
too far either way.

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E. What is monetary policy? Describe the tools of monetary policy.

Monetary Policy:
Monetary policy is the macroeconomic policy laid down by the central bank. It
involves management of money supply and interest rate and is the demand side
economic policy used by the government of a country to achieve macroeconomic
objectives like inflation, consumption, growth and liquidity.

Tools of Monetary Policy:

Conventional Instrument:
The central bank influences interest rates by expanding or contracting the
monetary base, which consists of currency in circulation and banks' reserves on
deposit at the central bank. Central banks have three main tools of monetary
policy: open market operations, reserve requirements, the discount rate.

1. Open Market Operations:

Open market operations are when central banks buy or sell securities.
These are bought from or sold to the country's private banks. When the
central bank buys securities, it adds cash to the banks' reserves. That
gives them more money to lend. When the central bank sells the securities,
it places them on the banks' balance sheets and reduces its cash holdings.
The bank now has less to lend. A central bank buys security when it wants
expansionary monetary policy. It sells them when it executes
contractionary monetary policy

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2. Reserve Requirements:
The reserve requirement refers to the money banks must keep on hand
overnight. They can either keep the reserve in their vaults or at the central
bank. A low reserve requirement allows banks to lend more of their
deposits. It's expansionary because it creates credit.
A high reserve requirement is contractionary. It gives banks less money to
lend. It's especially hard for small banks since they don't have as much to
lend in the first place. That's why most central banks don't impose a
reserve requirement on small banks. Central banks rarely change the
reserve requirement because it's difficult for member banks to modify their
procedures

3. The Discount Rate:

The discount rate is the third tool. It's the rate that central
banks charge its members to borrow at its discount window. Since it's
higher than the fed funds rate, banks only use this if they can't borrow
funds from other banks.
Using the discount window also has a stigma attached. The financial
community assumes that any bank that uses the discount window is
in trouble. Only a desperate bank that's been rejected by others
would use the discount window.

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 Part-2

Foreign Exchange Market:

The Foreign Exchange Market is a market where the buyers and sellers are involved in
the sale and purchase of foreign currencies. In other words, a market where the
currencies of different countries are bought and sold is called a foreign exchange
market. The structure of the foreign exchange market constitutes central banks,
commercial banks, brokers, exporters and importers, immigrants, investors, tourists.
These are the main players of the foreign market; their position and place are shown in
the figure below.

At the bottom of a pyramid are the actual buyers and sellers of the foreign currencies-
exporters, importers, tourist, investors, and immigrants. They are actual users of the
currencies and approach commercial banks to buy it.

The commercial banks are the second most important organ of the foreign exchange
market. The banks dealing in foreign exchange play a role of “market makers”, in the
sense that they quote on a daily basis the foreign exchange rates for buying and selling
of the foreign currencies. Also, they function as clearing houses, thereby helping in

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wiping out the difference between the demand for and the supply of currencies. These
banks buy the currencies from the brokers and sell it to the buyers.

The third layer of a pyramid constitutes the foreign exchange brokers. These brokers
function as a link between the central bank and the commercial banks and also between
the actual buyers and commercial banks. They are the major source of market
information. These are the persons who do not themselves buy the foreign currency, but
rather strike a deal between the buyer and the seller on a commission basis.

The central bank of any country is the apex body in the organization of the exchange
market. They work as the lender of the last resort and the custodian of foreign exchange
of the country. The central bank has the power to regulate and control the foreign
exchange market so as to assure that it works in the orderly fashion. One of the major
functions of the central bank is to prevent the aggressive fluctuations in the foreign
exchange market, if necessary, by direct intervention. Intervention in the form of selling
the currency when it is overvalued and buying it when it tends to be undervalued.

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Important of Foreign Exchange Market:
Foreign Exchange, usually known as Forex market, helps any country in transactions of
another country and thus it holds greater importance in trading, payments, and receipts
from the service providers as well as citizens because every country has different
currency with different base values.
 Foreign exchange is the trending of the different nation currencies or units of
account.
 It is important because the exchange rate, the price of one currency in terms of
another, helps to determine a nations economic health and hence the well-being
of all the people residing in it.
 The exchange rate is also important because it can help or hurt specific interests
within a country: exporters tend to be helped (hurt) by a weak (strong) domestic
currency because they will sell more (less) abroad, while consumers are hurt
(helped) by a strong currency because imported goods will be more (less)
expensive for them.

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* Do you think that the Corona virus crisis has significant impact on the performance of
world trade negatively? Gave a short relevant explanation to your answer.

Yes, I think the Corona virus crisis has significant impact on the performance of world
trade negatively.
During Corona virus many country locks down to protect from the virus. That’s not all,
the stop treading export import to other countries. As a result, no international currency
tread has been made. This is made a badly impact on the economic growth in every
country. For example, China is the largest export country the world. They can’t export
their goods and services to other countries. That’s why other countries don’t service and
no exchange of currency made.
This is not all. Many people work in abroad. End of the month they sent some money to
their family. But during this time, they lose their jobs, many of them are not went to their
work station, company don’t make their payment timely. That’s why they don’t get their
salary timely and they can’t send money to their family.
Traveling or tour is another part. Many people want to travel another country. So, they
need currency which is used in there. But this way also closed because of the corona
virus. People can’t go out from there home. So then cants buy currency.
So, as a result we can see that all of those things made an impact on the performance
of world tread.

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Reference’s:
1. https://www.investopedia.com/insights/what-is-fiscal-policy/
2. https://economictimes.indiatimes.com/definition/monetary-policy
3. https://www.businessnewsdaily.com/3484-fiscal-policy.html
4. https://www.thebalance.com/monetary-policy-tools-how-they-work-3306129
5. https://saylordotorg.github.io/text_money-and-banking-v2.0/s21-01-the-
economic-importance-of cur.html#: ~:text=Foreign%20exchange%20is%20the
%20trading, the%20people%20residing%20in%20it.
6. https://businessjargons.com/foreign-exchange-market.html

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Thank you.

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