Recently many states have raised their minimum wages. Do some research about at
ID: 1165821 • Letter: R
Question
Recently many states have raised their minimum wages. Do some research about at least two such states and analyze how it will impact the economy? Make sure to include the concepts learned in chapter 15 (unemployment) and the labor market. What role does the Federal Reserve (Fed) plays when it comes to economic problems? For example what was Fed contribution in the recent recession of 2008-09? Make sure to discuss about the Fed's monetary policy tools. Note: Please make sure to provide references in the end.Explanation / Answer
Minimum wages is defined as "the Minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract".
States which will increase their minimum wages are:-
1)California- California will increase minimum wage for the new year which is $11.
2)New York- minimum wage in New York will be $12 or $13 an hour depending on the size of the company.
IMPACT:-
PROS:
1) Increase in income of low paid.
2) Improve labour productivity- workers more motivated.
3) Firms have more incentive to invest in labour productivity.
4) Can offset impact of monopsony employers.
CONS:
1) Can cause unemployment in competitive markets.
2) Could encourage the use of black market.
3) Some firms can not afford the wages.
4) Could lead to higher prices as firms pass on wage increases.
The federal reserve system(fed) is the central banking system of the United States of America. It was created on December 23, 1913.
Federal reserve maintains the stability of the financial markets and constrains potential crises. It provides banking services to other banks, the U.S government and foreign banks. The fed performs its functions by conducting monetary policy. The goal of monetary policy is healthy economic growth.
FED CONTRIBUTION IN THE RECENT RECESSION OF 2008-09:-
1) Provided liquidity- As a short term market froze the federal reserve expanded its own collateralized lending to financial institution to ensure that they had access to the critical funding needed for day to day operations.
2) Supported impaired financial markets- The fed acted to improve conditions in two vital markets that broke down during the panic in the fall of 2008: money market mutual funds and short term lending to business.
3) Supported systematically important financial institutions- In 2008 the investment bank bear Stearns nearly failed which risked a domino effect that would have severely disrupted financial market to contain the damage. The fed facilitated the purchase of bear Stearns by the bank JPMorgan chase by providing loans backed by certain bear Stearns assets.
MONETARY POLICY TOOL OF FED:-
1) Open market operations- Purchase and sales of U.S treasury and federal agency securities- the federal reserve's principal tool for implementing monetary policy.
2) Discount rate- The interest rates charged to commercial banks and other depository institutions on loans they receive from their regional federal reserve bank's lending facility- the discount window.
3) Reserve requirements- The amount of funds that a depository institution must hold in reserve against specified deposit liabilities.
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