ECO 372 Week 4 Federal Reserve Presentation

Topics: Monetary policy, Central bank, Federal Reserve System Pages: 10 (320 words) Published: March 8, 2015
WHAT ARE THE FACTORS THAT WOULD INFLUENCE THE
FEDERAL RESERVE IN ADJUSTING THE DISCOUNT RATE?



Weak Economy.



Low Employment Levels.



High Prices Fluctuation.



Low Economy Production Capacity.



High Federal Funds Rates.

HOW DOES THE DISCOUNT RATE AFFECT THE DECISIONS
OF BANKS IN SETTING THEIR SPECIFIC INTEREST RATES?

Lower Discount Rates:
1. Banks borrow more reserves
2. Increase in loan offers.
3. Lower interest rates .
 Increase Discount Rates:
1. Bank reserve decrease.
2. Fewer loans offers.
3. Higher interest rates.


How does monetary policy aim to avoid inflation?










Contractionary monetary policy:
Selling of U.S. Treasury Securities-Open
Market Operations.
Increase in the Discount Rate.
Increase in Reserve Requirements.
Control Money Creation.
Increase in Government Spending.
Decrease in Taxes.

FED CONTROLLING MONEY SUPPLY

How does monetary policy control the money supply?
•With more money, aggregate expenditures are greater.

 Low interest
rates:
 Investment
expenditures.
 Government
purchases.
 Net exports
 Consumption
expenditures.

HOW DOES MONETARY POLICY CONTROL THE
MONEY SUPPLY?


With less money, aggregate expenditures are lower.
•High interest rates:
 Investment expenditures
decrease .
 Government spending stops.
 Net exports
 Consumption expenditures.
Decrease.

HOW DOES A STIMULUS PROGRAM
(THROUGH THE MONEY MULTIPLIER)
AFFECT THE MONEY SUPPLY?


Potential Economic Stimulus:

1. Tax cuts for individuals.
2.Tax cuts for companies.
3. Expenditures on public works.
4. Investments in research and development

WHAT INDICTORS ARE EVIDENT THAT THERE IS
TOO MUCH OR TOO LITTLE MONEY WITHIN THE
ECONOMY? HOW IS MONETARY POLICY AIMING
TO ADJUST THIS?
Too Much Money .
1. Consumer Spending


Rise
2. Higher Demand for
products.
3. Supply of products
decrease.
4. Prices rise too
quickly

Little Money
1.Decline in purchasing
power
2. Low Demand for Products
3. Lower Prices

REFERENCES

 Obringer, L.A,. (2002)."How the Fed Works“. Retrieved from

HowStuffWorks.com.
 293 January 2012.


Schwartz, A.J. "Money Supply." The Concise Encyclopedia of
Economics. 2008. Library of Economics and Liberty. Retrieved January 29, 2012 from the World Wide Web:
http://www.econlib.org/library/Enc/MoneySupply.html



References:  Obringer, L.A,. (2002)."How the Fed Works“. Retrieved from
HowStuffWorks.com.
 293 January 2012.

Schwartz, A.J. "Money Supply." The Concise Encyclopedia of
Economics. 2008. Library of Economics and Liberty. Retrieved
January 29, 2012 from the World Wide Web:
http://www.econlib.org/library/Enc/MoneySupply.html
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