1st PART THE CENTRAL BANK exercises https://www.youtube.com/watch?v=LgYKBJqPYwI I Watch the video and fill in the key verbs. Then set the subtitles and check if you filled in the gaps correctly. (Your work here is a proof that you've watched it) The primary function of a central bank is to _manage_the nation's money supply through activities such as _managing_ interest rates, _setting_ the reserve requirements and _acting_ as a lender of last resort to the banking sector during the bank insolvency or financial crisis. The central bank has been described as a lender of last resort, which means it is responsible for _providing_ its economy with funds when commercial banks cannot _cover_ a supply shortage. In other words the central banks _prevents_ their countries' banking system from _failing_. However, the primary goal of the central bank is to _provide_ their countries' currencies with price stability by _controlling_ inflation. As central bank also _acts_ as the regulatory authority of a country's monetary policy and is the sole provider and printer of notes and coins in circulation. Time has proved that the central bank can best function in these capacities by _remaining_ independent from government fiscal policy and therefore uninfluenced by the political concerns of any regime. The central bank should also be completely divested of any commercial banking interests. II CONNECT THE FOLLOWING VERB WITH THE CORREPONDING SENTENCES: Control Establish Ensure Intervene Lend Sell • government bonds to commercial banks or buying them back in order to alter the amount of credit the banks can offer-sell • on foreign exchange markets (buy and sell national currency) to prevent bigger fluctuations-intervene • amounts of banknotes in circulation-control • min and max lending rates→ control the credit system-establish • to a commercial bank in danger of going bankrupt-lend • that banks have a sufficient liquidity ratio to allow customers to withdraw their deposits when they want-ensure III COMPLETE THE SENTENCES: Central banks are responsible for: • overseeing the monetary supply • implementing monetary policy • supervising exchange rates • regulating the credit supply • supervising commercial banks • acting as a lender of last resort • maintaining currency status IV THE EUROPEAN CENTRAL BANK - Watch the video on the provided link and answer the following questions: • https://www.youtube.com/watch?v=TAlcFwGIQBg 1 Where are the headquarters of the ECB? In Frankfurt 2 Who is the Euro system formed of? It's formed of countries that use Euro as their value 3 What are the main tasks of the Euro system? Main tasks are to define and implement monetary policy for the Euro area 4 How is the price stability in the Euro zone maintained? By keeping inflation rates at levels below but close to 2 percent 5 What might happen in case of the high inflation? People wouldn't be avaible to get the same amount of goods and services for the same amount of money. 6 Who are the members the ECB Governing council? Members are all governors of the national central banks of the euro area countries and the members of the European Central Bank's Executive Board 7 Name the five tasks of the ECB – 1)Ensuring the smooth operation of payment systems,making it faster,safer and easier to make cashless euro payments throughtout Europe, 2)Holding and managing official reserves in foreign currencies and other assets, 3)collecting and compiling a wide range of statistics, 4)Authorizing issuance of euro banknotes, 5) To identify risks FISCAL POLICY Ist paragraph Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. These two policies are used in various combinations to direct a country's economic goals. Here's a look at how fiscal policy works, how it must be monitored, and how its implementation may affect different people in an economy. 1 What are the tools of fiscal policy? Taxes and spending 2. When applied by the government what is the goal of the fiscal policy? Adjusting its spending levels and tax rates to monitor and influence a nations economy 3. When is the fiscal policy most effective? In a deep recession where monetary policy is insufficient to boost demand. 2nd paragraph Before the Great Depression, which lasted from October 29, 1929, to the onset of America's entry into World War II, the government's approach to the economy was laissez-faire. Following World War II, it was determined that the government had to take a proactive role in the economy to regulate unemployment, business cycles, inflation, and the cost of money. By using a mix of monetary and fiscal policies (depending on the political orientations and the philosophies of those in power at a particular time, one policy may dominate over another), governments can control economic phenomena. *LAISSEZ-FAIRE ECONOMY Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as "leave alone" (literally, "let you do"), is that the less the government is involved in the economy, the better off business will be—and by extension, society as a whole. Laissez-faire economics are a key part of free market capitalism. 1 How did American economic policy get changed after the World War II? By taking a proactive role in the economy and using a mix of monetary and fiscal policies 2 In such a proactive attitude what should be regulated by the government? Unemployment,business cycle, inflation and the cost of money KEY TAKEAWAYS Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. Using a mix of monetary and fiscal policies, governments can control economic phenomena. How Fiscal Policy Works Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when between 2% and 3%), increases employment, and maintains a healthy value of money. Fiscal policy plays a very important role in managing a country's economy. For example, in 2012 many worried that the fiscal cliff, a simultaneous increase in tax rates and cuts in government spending set to occur in January 2013, would send the U.S. economy back into recession. The U.S. Congress avoided this problem by passing the American Taxpayer Relief Act of 2012 on Jan. 1, 2013 1 What does the Keynesian economics, based on the theories of John Maynard Keynes, state? It state that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. 2 What does this type of economics have inflence on? On inflation, increasing employment and maintains a healthy value of money