Name: Phan Bao Nhi – QS170093

Class: MI17B

INDIVIDUAL ASSIGNMENT 2

1. - The role of financil system is help to match one per- son’s saving with another person’s
investment.
- Two markets that are part of the financial system in the US economy are the financial
markets and financial intermediaries.
+ Financial markets:
• Bond: A bond is a certificate of indebtedness that specifies the obligations of the
borrower to the holder of the bond. Put simply, a bond is an IOU.
• Stock market: refers to the place where the corporations issue equity securities for
investors to purchase and sell these equity securities. It presents ownership of the
companies.
+ Financial intermediaries:
• Banks: are the financial intermediaries with which people are most familiar. A
primary job of banks is to take in deposits from people who want to save and use
these deposits to make loans to people who want to borrow.
• Mutual Funds: is an institution that sells shares to the public and uses the proceeds
to buy a selection, or portfolio, of various types of stocks, bonds, or both stocks and
bonds.
2. a.
Number of products produced in 1 hour
Name country Cereal Sweaters
Australia 30 product / hour 1 product / hour
Scottish 50 product / hour 2 product / hour
- About product cereal and sweaters, Scottish workers have the absolute advantage over
Australian workers. Because the amount of inputs needed to produce both goods is
lower in Australia than in Scotland.
 Scottish has an absolute advantage.
- Opportunities cost:
Cereal Sweaters
Australia 1/30 sweaters 30 cereal
Scottish 1/25 sweaters 25 cereal
- Australia workers have comparative advantage in cereal production over Scottish
workers. Because Australia have opportunities cost less than Scottish (1/30 < 1/25)
- Scottish workers have comparative advantage in sweaters production over Australia
workers. Because Scottish have opportunities cost less than Australia (25 < 30)
b. If Australia and Scotland decide to trade, Australia will export cereal to Scotland.
Because Australia workers have comparative advantage over Scottish workers in the
product of cereal
3. - Inflation in United States is at its highest in 40 years, tools of the Federal Reserve System
to control inflation between 2021 and 2022 is open – market operations.
The Fed's first line of defense is OMO. The Fed buys or sells securities, typically Treasury
notes, from its member banks. It buys securities when it wants them to have more money
to lend. It sells these securities, which the banks are forced to buy. That reduces the Fed's
capital, giving them less to lend. As a result, they can charge higher interest rates. That
slows economic growth and mops up inflation

4. - Households that borrow money will benefit in this situation.

-Expected inflation by 4 percent, but in reality, prices increased by 6 percent. This means
that real interest rates fall
+ For households, this means benefits. Households will have to pay less interest than they
expect, they pay the bank will fall to 2 percent because of the 2 percent increase in inflation