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Why doesn't the government pay for all its goods simply by printing money, What was the cause of the S & L crisis, and What role did the government guarantees play in that crisis?

1. Why doesn't the government pay for all its goods simply by printing money?

2. What was the cause of the S & L crisis? What role did the government guarantees play in that crisis?

3. Is the current US Banking system susceptible to panic? If so, how might a panic occur?

4. You can lead a horse to water, but you can't make it drink. How might this be relevant to expansionary (as opposed to contractionary) monetary policy?

5. Which is considered the more effective tool: monetary or fiscal policy? Why?

6. What are two ways government can finance a budget deficit?

7. "The deficit should be of concern." What additional information do you need to undertake a reasonable discussion of this statement?

Solution Preview

Posting ID: 43210 Business, Other Year 1 Economics
Bid Credits: 10 Deadline: June 23, 2005, 1:57 pm EDT
1. Why doesn't the government pay for all its goods simply by printing money?
When the government (central bank, i.e. Federal Reserve) print more money, this will increase the money supply. When the government pays for all its goods by printing money, there is an excess supply of money (while the demand for money is unchanged). Obviously, the price of goods will be increased and unexpected inflation results. Therefore, the government could not pay for all its goods simply by printing money.

2. What was the cause of the S & L crisis? What role did the government guarantees play in that crisis?

It is not clear which S & L crisis is. If you let me know the definition, I would then be able to help you with the question.

3. Is the current US Banking system susceptible to panic? If so, how might a ...

Solution Summary

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"The current US Banking system is not susceptible to panic. Usually the panic occurs when there is an unexpected request for withdrawal of deposits from the private sector. The Fed requires that all the..."

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