Monetary Base is Exploding.

So What?
Group 7
BSBM FM2 5
 Table of Contents
Case Context/
1 o Identification of
Background
Relevant Case Facts
Problem Definition & Point of
2 View
o Clear and concrete
statement of the issues to be
resolved/addressed
o Specify point of view taken
 Table of Contents

3
Framework for Analysis and areas for
o Approach or methodology for arriving
consideration
at thecase
o Key solution
elements that need to
be taken into account in
developing
Analysis the

4 o recommendation.
Discussion of
Options
 Table of Contents

5 Decision/
o Clear and specific
Recommendation
response(s)
o Justificationto the
for problem
chosen
o recommendationsteps,
Implementation
including potential
implementation issues and
how these may be addressed
 1 Case Context/
Background
Identification of
Relevant Case Facts
Inflation is a At the first part of this Myriads of people
monetary rely on the
case, some of the big-
phenomenon textbook story
that is league investors are
betting if the inflation will about the
permanently
rise or fall significantly. monetary base
everywhere.
being inflationary.
 1 Case Context/
Background
The bottom line of
One way of
this case is that when The exploding
reducing the
reserves pay interest, monetary base
monetary base
the monetary base is has nothing to do
is through the
no longer an with the
Open-Market
interesting economic inflation.
Operations.
statistic.
 Problem Definition &
2 Point of View
A. Clear and concrete statement of the
issues to be resolved/addressed
The Inflation will significantly rise because of the rapid
growth of monetary base.
 Problem Definition &
2 Point of View
B. Specify point of
view taken
FED has its toolkit to control the monetary base to avoid
it from being inflationary.
 Framework for Analysis
3 and areas for consideration
A.Approach or methodology for
arriving at the solution
 Framework for Analysis
3 and areas for consideration
A.Approach or methodology for
arriving at the solution
 Framework for Analysis
3 and areas for consideration
B) Key case elements that need to be taken into
account in developing the recommendation.
 4 Analysis
Discussion of
A. Options
Changes in the Federal funds rate will set in motion a chain of events that affect
other short-term interest rates, foreign exchange rates, long-term interest rates, the
amount of money and credit available, and, in turn, a variety of economic variables
such as employment, output, and the prices of goods and services.
B. Consisting of an Open-market purchases and sales of US government securities,
with the intention of initiating the federal funds rate under control with a publicly
stated FOMC target .
 5 Decision/
Recommendation
A. Clear and specific
response(s) to the problem
The Federal Market Committee (FMC) must declare a changes to Central
Bank by raising the interest rates paying on reserves along with the federal funds rate
though the use of Contractionary Monetary Policy. In addition, the FMC can change
the benchmark rates in Open-Market Operations by purchasing longer-term securities
that can cause for it to increase in demand which may turn into lower interest rates.
5 Decision/
Recommendation
B. Justification for chosen
According to John recommendation
Williams (2008), the Fed reduced the federal funds rate to
zero. It catalyzed the Fed to purchase longer-term securities which is plausible as it
increased longer-term treasuries and securities that caused the asset prices to also
increase and the longer-term interest rates to reduce. As an outcome, it improved the
financial conditions and helped to stimulate again the real economic activity.
 5 Decision/
Recommendation
C. Implementation steps, including potential implementation
issues
o and how these may be addressed
Fed must increase the interest rates to increase the cost of borrowing money.
o Fed can decrease the money consumption of consumers and businesses investing to
new equipment.
o Businesses will stop to hire additional employees and disburse more on other
resources.
o The decrease in spending throughout the economy, the inflation and inflation rate
would shrink and draw back towards the standard percentage rate.
 “ At best, in such
depression times,
monetary policy is a
feeble reed on which to
leaN.”

JOHN KENNETH
ALBRAITH
 Group 7 BSBM FM 2-5
Cherrilyn May
Bueno
Kim Ericka
Cubinar
Roselle Ann
Perlas
Tr i s h a M a e