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USC ECON 205 - Monetary Policy and Growth

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ECON 205 2nd Edition Lecture 11 Outline of Last Lecture I. Economic growth and developmentII. Bilal Khan’s lecture: Economic Convergence of Pakistan with the United States (in terms of GDP per capita)III. Federal Reserve and Monetary PolicyIV. Monetarism and Bank ReservesV. The Stock MarketOutline of Current LectureI. History of the Federal ReserveII. Economic growthIII. Components of GrowthCurrent LectureI. History of the Federal ReserveForeign countries get US gold through trading. Originally, during the time of FDR for instance, the price of gold was fixed to the US dollar. Then, foreign governments could collect enough US dollars to buy gold. However, during President Nixon’s term in office, he announced that the US would be floating their currency versus maintaining a gold standard, the “Nixon shock”. Now thedollar is fiat, while it used to be backed to a certain reserve by gold. Because the current interest rate of the Federal Reserve is nearly 0%, monetary policy is rather ineffective. When the interest rate rises, the Fed can have more of a role in money policy.II. Economic growthEconomic growth, also called economic development, is a continuing process since the industrial revolution of the 1800s; it is a long-term process.III. Components of GrowthThe major components of growth are:Human resources, like education, experience, skills, motivation, discipline, entrepreneurship, reactivity, risk-taking, and hard work.The US, for instance, became a world leader due to its human resources and high-qualityuniversity system.Natural resources are important to create output, for commodities like land, minerals, fuel, the environment, water and waterways, and extraction abilities (i.e. mining).Capital, such as capital per worker, factories, machinery, roads, infrastructure, and intellectual capital (a human resource).Technological advancement in knowledge, or physical creations of inventions and innovations. These advancements can take place is fields of science, engineering, management, or entrepreneurship. Managerial technologies have to deal with efficiency, like the production line, time and motion steadies, resources steadies, and other methods of efficiency. Social technologies are organizational techniques including job transition during careers and company organizations (like near-tenure in Japan or corporate democracy in


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