The European Union has created the European Central Bank (ECB)

Discussion Questions:

1. The European Union has created the European Central Bank (ECB). Unlike the Federal Reserve, the ECB is not a lender of last resort. This means that if commercial banks fail to honor their deposits the ECB is not supposed to step in and help them with emergency credit. In your opinion is this a reliable institutional setting for a banking system? Why? Justify your opinion.

2. Some producers’ cooperatives in Europe try to survive on the market without using money. You can become a member of a society that provides different resources. You can also market your own work force in exchange for the products that others provide. Do you think this is a realistic solution for a country? Discuss the pros and cons of this type of solution.

Assignments:

1. Monetarist Theory of Demand for Money
a. Prepare a report on the Monetarist theory of demand for money and its approach to monetary policy. Specifically include a discussion on the period of monetarist policy under Federal Reserve Chairman Paul Volcker from 1979 to 1987.
b. Create a data file in Microsoft Excel and plot the following:
• Real GDP
• Unemployment rate
• Interest rate
• Inflation rate
c. Plot these variables in relation to the money supply during that period and compare these to the periods immediately before and after it.
d. Evaluate the effectiveness of this policy in terms of its own goals and in terms of macro economy in general.
e. Create a Microsoft Word document to present the analysis based on the curves.

You may want to consult the following web sites in preparing your report.

Allen Meltzer, “Monetarism, The Concise Encyclopedia of Economics” http://www.econlib.org/library/Enc/Monetarism.html

James Tobin, “Monetary Policy: Recent Theory and Practice”
http://cowles.econ.yale.edu/P/cd/d11b/d1187.htm