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International Corporate Accounting
Pages 6 (1506 words)
Economists are of the opinion that money is not to be considered neutral on short term basis. Friedman and Schwartz have argued that Great Depression was extended due to the implementation of the policy of tight money by the Federal Reserve. Economists have derived 'negative relation between wage inflation and unemployment' (Gibb, 2000), it was later confirmed that 'money growth raises output in the short run'…
However it is incorrect to regard the money as the appropriate measure of the policy towards the increase in the interest rates, the interest rates are based on the supply of stocks, and rate of interest is regarded as the return on stocks, through stocks the evaluation of the liquidity effect can be exercised. The measurement of the money can be exercised through the non-borrowed reserves; the purpose of injecting the money can not be achieved through the withdrawal of say, Treasury bills. The injection of money can also be exercised through the purchase of long-term stocks, and this is expected to develop an impact on the short-term rates (Tirole, 2005).
The stock market risk is associated with the occurrences when the agents allocate the funds towards the stock market without any evaluation and analysis of the purchasing and selling price of the stock afterwards. Such concerns are imminent because asset markets are considered to be incomplete and segmented. The risk within the stock market based on the supply of the stocks is experienced when the agents and dealers are willing to invest their resources in the trade market. ...
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