Economy is the study of normal human conduct in the attempt to accomplish their needs. The main point of economics is trying how an individual or nation will behave to certain object's limitation. Economists come to a conclusion by analyzing people, that an individual will try to do anything in order to fulfill his needs and then aim towards his unlimited wants.
Economic stability is a term that indicates the lack of unnecessary rise and fall in the macro economy. Stable economy is something that has low and stable inflation rate and fairly constant output growth. By the 1980s, the output growth and inflation encompassed what it was before 20 years. According to Kahn McConnell, this could have been a result of changes in informational technology. During 1980s the ratio of inventory-to-sales of U.S. economy began to decline swiftly and consequently, lingered a good deal closer to its target value. But around 1984 things began to change, and inventory movement sale was expected to be more profitable than it was in preceding years. Later the rise in the economy could be the result of new technologies and inventions.
Furthermore, the layouts show that a change to more aggressive monetary policy has no remarkable effect on output, but it does considerably lower the instability of inflation. Now due to the upcoming changes firms make their production decisions after looking at the condition of market. To them the information technology predicts the upcoming change in demand. A good policy does not steady the GDP growth. However, it did reduce the instability of inflation in the preceding 2 decades.
Importance of economic stability:
By endorsing economic stability a country may evade economic and financial crisis. Economic stability helps in avoiding high inflation, excessive volatility in financial markets and economic activities. Instability like this can shut down businesses and increase uncertainty among people about spending their money. It can also slow down the economic growth, and standards of living can be damaged. Economic market has to have a bit of instability, but it's up to the policy makers to control it to the minimum without so much as declining the capability to raise the standards of living by efficiency, raise in productivity and employment. Economic and financial stability is a big concern for the world since now the countries are connecting to one another in terms of globalization. So any problem that arises in one country can result in spreading it over the world. The globalization had a significant effect on the development of economies throughout the world. Hence no country can be said as financially and economically unstable. (How the IMF Promotes Global Economic Stability, September 27, 2010)
2.
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Federal Reserve Board:
The Federal Reserve board is based on the central banking system of U.S. The central banking system of U.S has 12 Federal Reserve banks, the Federal Open Market Committee, and the national and state member banks. Its main motive is to control the course of money and credit .The Federal Reserve was set up to control the banking system and make it stable and to support a strong financial system. This was started in 1913. Approximately, all the banks in U.S are branches of Federal Reserve System, which means that they maintain a percentage of their investments and deposits with the regional Federal. These requirements were put by the Board of Governors, and it cannot be changed since changing the requirements will affect the amount of money supply in the economy. The Federal Reserve System is a type of a bank since a lot of transactions between banks are processed through it. Even financial institutions can borrow money through it. It provides credit to those banks or institutions that don't gets it from any other way or in case of emergencies. It acts as a government's bank. It also plays with the government securities and U.S currency. It also acts as a regulatory agency to make sure that things run smoothly in banks, and that consumer rights are protected. It is also the most important source during a financial crisis..
The Federal Reserve System comprises of three categories.
1. The Board of Governor (BOG)
2. The Federal Open Market Committee (FOMC)
3. The Twelve Regional Federal Reserve Banks
Relationship:
The member of the Board of the governor is chosen by the president. Only one member is to be selected from the 12 Federal Reserve district candidates by the president in fair play. Majority of FOMC members is involved with the 7 seven Board members. FOMC is the group of people who formulates the decisions affecting the cost and accessibility of funds and credit in the market. After the 7 members, 5 members are left, which are Reserve Bank Presidents, the person who is the president of Federal Reserve Bank of New York. FOMC is the group that selects the Chairman of the Board of Governors and its Vice Chairman. The Board of Governor keeps the records of measures taken by FOMC and its reason for actions. This report is submitted to the Congress twice a year as well as the report on state of economy and course of monetary policy. Moreover, the chairman confirms this report. Furthermore, the Board shares its responsibilities with the reserve bank on the subject of discount rate policies.
The Board of Governors is the head of the Federal Reserve System, who lay down the policies. It consists of 7 members who are selected by the president and verified by the senate. The governors of Federal Reserve are handed 14-year term to protect them from political pressures. The term is terminated in every 2 years. The most powerful man in the Federal Reserve is a chairman of the board of governors who supervises the whole staff, led the board discussions, informs frequently to congressional committees and controls the direction of monetary policy. The federal chairman is selected by the president of U.S for a 4-year term. Though, it is not rare for a fed chairman to serve many uninterrupted years.
3.
Exchange rate: $1= 5.55franks
1 Levis shirt = $20
$20* 5.55=111.11 francs
The shirt price in franc is 111.11.
Exchange rate: 1 franc=$ .18
1 Peugeot = 83250 francs
83250*.18= $14985
The car price will be 14985 dollars
If the dollar price appreciate twice its current price than the shirt price in francs will increase with the same proportion.
The price of the car will decrease with the same proportion
D) If the dollar has appreciated against francs that indicate that the demand of US goods has been increased in the French markets. At times depreciation of currency is considereds a disadvantage. However, it is not applicable on every situation. If the franc's is declined against dollars then the competitive edge of cheap goods will move towards France. It can export its goods to United States. And people would be willing to buy them.
Moreover, the currency depreciation leads to decline in imports of the France.
