X. Read the passage below and explain the meanings of the words and phrases which have been highlighted

IX. Write a memorandum.

The Professor asks the students to write a memo on the content of Monetary and credit aggregates in which they should make up a scheme of what M₁, M₂, M₃ and credit extended to (debt owned by) consist of.

The Federal Reserve publishes data on three monetary aggregates. The first, Ml, is made up of types of money commonly used for payment, basically currency and checking deposits. The second, M2, includes Ml plus balances that generally are similar to transaction accounts and that, for the most part, can be converted fairly readily to Ml with little or no loss of principal. The M2 measure is thought to be held primarily by households. The third aggregate, M3, includes M2 plus certain accounts that are held by entities other than individuals and are issued by banks and thrift institutions to augment M2-type balances in meeting credit demands; it also includes balances in money market mutual funds held by institutional investors.

The Federal Reserve publishes a broad measure of credit extended to domestic nonfinancial sectors.

The aggregates have had different roles in monetary policy as their reliability as guides has changed.

All of the guides to monetary policy discussed above have some­thing to do with the transmission of monetary policy to the economy. As such, they have certain advantages. However, none has shown a consistently close enough relationship with the ulti­mate goals of monetary policy that it can be relied upon single-mindedly. As a consequence, makers of monetary policy have tended to use a broad range of indicators—those discussed above along with information about the actual performance of output and prices—to judge trends in the economy and to assess the stance of monetary policy.

Such an eclectic approach enables the Federal Reserve to use all available information in conducting policy. This may be especially necessary as market structures and economic processes change in ways that affect the usefulness of any single indicator. However, communicating policy intentions and actions to the public can be more difficult with the eclectic approach than with the approach, for example, of targeting the money stock if the linkage between the money stock and the economy were fairly close and reliable. And, by looking at many variables, which necessarily will give some conflicting signals, the Federal Reserve may delay taking needed action toward restraint or expansion suggested by one or more indicators. As a consequence, more aggressive measures may be needed later if the ultimate goals of policy are to be achieved.

Exchange rate movements are an important channel through which monetary policy affects the economy, and they tend to re­spond promptly to a change in the provision of reserves and in in­terest rates. Information on exchange rates, like that on interest rates, is available almost continuously throughout each day.

Interpreting the meaning of movements in foreign exchange rates, however, is not always straightforward. A decline in the foreign exchange value of the dollar, for example, could indicate that mon­etary policy had become more accommodative, with possible risks of inflation. But foreign exchange rates respond to other influ­ences, such as market assessments of the strength of aggregate de­mand or developments abroad. For example, a weaker dollar on foreign exchange markets could instead suggest lessened demand for U.S. goods and decreased inflationary pressures. Or a weaker dollar could result from higher interest rates abroad—making assets in those countries more attractive—that could come from strengthening economies or the tightening of monetary policy abroad.

Determining which level of the exchange rate is most consistent with the ultimate goals of policy can be difficult. Selecting the wrong level could lead to a sustained period of deflation and high levels of economic slack or to a greatly overheated economy. Also, reacting in an aggressive way to exchange market pressures could result in the transmission to the United States of certain distur­bances from abroad, as the exchange rate could not adjust to cushion them. Consequently, the Federal Reserve does not have specific targets for exchange rates but considers movements in those rates in the context of other available information about financial mar­kets and economies at home and abroad.

XI. Analyze the following text. Make up a plan of it; give the translation of the underlined words and word combinations.

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