ECO 372 Week 4 Federal Reserve Presentation
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,.
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,.
References: Obringer, L.A,. (2002)."How the Fed Works“. Retrieved from HowStuffWorks.com. <http://money.howstuffworks.com/fed.htm> 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