Various Practical Theories on International Monetary Economics and Finance

International Monetary Economics
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International Monetary Economics
This discussion will focus on the various practical theories on international monetary economics. An article touching on international finance will be retrieved from the media and reviewed, through written explanations and graphs, in line with the tools learned in class. This will be followed by an explanation of the lower price levels in poorer countries, the effect of a temporary fiscal expansion on output, the ramifications, on the exchange rate, of the central bank holding the money stock constant instead of purchasing foreign assets when output increases, and the weakest measure, among the Government Safeguards Against Financial Stability, that contributed to the 2007-2009 U.S. Financial Crisis.
The Economist Article
In “Inflation in America,” (2021), economists and officials have engaged in a debate whether the condition is short-term, brought about by the overstretched supply chains, or it is a long-term one. One of the causes of inflation is the increase in the supply of money into the economy, especially the currency in circulation, leading to increased monetary assets. In this article, the economists and other experts are uncertain as to the cause of the current situation and whether it will last in the short run or it will spiral into the long run. For this review, it is assumed that this situation is demand-pull inflation that has been brought about by an increased supply of money, with too much cash or money chasing after too few goods. The Federal Reserve System, or simply the Fed, is the central bank of the U.S. and is in charge of controlling the supply of money, specifically the currency in circulation, to forestall an economic crisis like inflation.
Therefore, the Fed is in charge of both the supply and demand of the currency in circulation. It is directly involved in the regulation of the currency in circulation (Krugman, et al., 2018). In the case of an increase in the supply of money in the economy, the prices of goods have insufficient time to make adjustments to the conditions in the market. On the contrary, in the long run, prices of outputs and that of factors of production have sufficient time to make adjustments to the conditions in the market thus; wages make adjustments to the supply and demand for labor, amount of labor coupled with other factors of production determine income and real output, the supply and demand of saved funds determine the real interest rates. In addition, in the long run, the average price level adjusts proportionally based on the amount of supply of money, leading to the conclusion that there exists a direct relationship between the amount of supply of money and the inflation rate, which is predicted to be the difference between the supply of money growth rate and the demand of money growth rate (Krugman, et al., 2018). See the below illustration;
Percentage increase in money supplyPercentage increase in the price level1040302010203040
Subsequently, “Inflation in America,” (2021) writes that if the prevailing inflationary environment is a short-term one, then the Federal Reserve should not ...