Quiz 15: Jobs and Unemployment
Federal reserve, commonly known as fed is the central bank of country U. The responsibility of this institutions is to develop and implement monetary policy for the country. It regulates the money supply and manipulates the interest rates as well. When fed performs open market operations then they sell or buy bonds in the open market. If fed buys the bonds then the money fed paid gets deposited in banks and then first ripple happens which is the change in amount of reserve with the banks. Next ripple would be that bank would like to dispose off their excess reserves and to do so they give more
Here, the government considered monetary excess leading to boom before the 2008. There wereThus, excess liquidity was pumped in the system.
A market is a place where buyers and sellers meet. Financial market is where there is availability of finance. In fact, all other markets rely on financial markets. An automobile market or computer market if crashes, there are no buyers and sellers of automobile and computers, it will have some effect. The other sectors will not be affected much. However, in case of the financial market crashes, it will be like a heart attack. The credit availability will not be there. There will be only buyers of credit without any suppliers. The credit will be dried up and companies, individuals will not be able to borrow. Furthermore, most companies will be forced to close leading to unemployment. Thus, financial markets freeze the real market, which makes the policy makers to be more concerned about the financial market.