Angela Scharf, Chapter 10, Q.2

The issues raised in this chapter affect our lives directly, but in a more general way. Robert Mundell infers that bad monetary policies can launch any nation into a detrimental state. He uses the example of World War II and the Nazi revolution, and although these statements seem rather melodramatic, he has an interesting point. We are dependent on money. Not because of its worth (because it doesn't actually have and inherent worth) but rather because of its purchasing power. As referenced to in the chapter, the Federal Reserve controls the money supply to the economy therefore establishing credit to the economy. If markets crash, the Fed injects money into the economy to avoid freezing spending. If the market spending needs to slowdown, then the Fed raise interest rates. This also implies that the Fed can use monetary flow to avoid or counter act disasters from happening, such as WWII, given the Federal Reserve calculates the right amount of credit in order to keep the economy growing. There is a limit to how fast the economy can grow however, (how low the interest rates can go) because eventually the consumer demand will exceed the amount the economy can produce. This is how inflation results, further establishing the fact that enacting monetary policies and interest rates in the markets is a meticulous process and can affect our lives directly.