MGMT 121 Feb 26-March 4, 2016
MGMT 121 Feb 26-March 4, 2016 MGMT 121
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This 4 page Class Notes was uploaded by Manny Sandhu on Friday February 26, 2016. The Class Notes belongs to MGMT 121 at University of California - Merced taught by Dr. Cook in Spring 2016. Since its upload, it has received 24 views.
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Date Created: 02/26/16
Open Market Operations Central Bank Independence 2 Types: 1)Instrument= free to choose instruments —i.e. interest rates + monetary aggregates —Tools—>Instruments—> Goals 2)Goal=free to choose goals —i.e low unemployment +/or price stability Fed is free in both dimensions. Fed is free from budgetary pressures Freedom of Fed can be adjusted by legislation the central bank of the EU was set up by a treaty, so any changes must be ratified by all members. Pros of Independence Political Business Cycle If politicians ran the central bank —>expansionary policy before elections —not based on any economic conditions —>Contractionary policy immediately after election (If ever). Politicans vs Economists —Economists are experts, politicians are not. Cons of Independence —Politicans vs Economics politicians are responsible to voters econ generally comes from ivory towers and not the real world. CH 14 3 players in the money supply 1)The fed, 2)Banks, 3) Depositors The fed—> controls the monetary base Banks & Depositors —> Influence the money multiplier. Balance Sheet compare assets to liabilities —asset= something of value —liability= something owed 1.) Fed’s BS Assets / Liabilities Securities/ Currency Loans to banks/Reserves monetary base = liabilities of the fed monetary base = C + R MB is the concentration of Money supply M^s —KoolAid mix Liabilities of Fed 1a)Currency= federal reserve notes ====IOU notes from the Fed. —formerly backed by an equivalent of gold+silver, now backed notes. b)Reserves = deposits by banks held at the Fed. all banks are required to hold a fraction of deposits as reserves Ex: TR = IS RR= 10 D=100 ******What is the required reserve ratio? 10/100 = 0.1 or 10% Reserves held in excess of what is required are called excess reserves. How much ER above? TRRR=1510=5=ER 2) Bank BS: Assets/Liabilities Securities/Loans from Fed Reserves/ Deposits 3)Public (or Depositors) BS: Assets/Liabilities Securities/ Deposits/ Currency/ Open market operations: Fed buys bond from stock 1) Fed buys bond from bank 2) Initially Bank’s BS A/L $100 Sec/ Fed buys 100 of sec by increasing the bank’s reserves by an equal amount fed a/l +100 sec / +100 res What happens to MB? M^s? MB= Currency + Reserves; R increases by 100 so MB increases by 100 If MB increases then Money supply increases, c.p. What happens to interest rate?** There is a graph 2)OMP from depositors 100 Dollar purchase assume purchase held as deposit 2 hints: 100 dollar purchase assume purchase held as deposits assume change in deposits held as reserves Deposites A/L 100 sec +100 Deposits Bank A/L +100 Reserves/+100 Deposits Fed A/L +100 sec/+100 Res Open Market Sales
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