Week 9 Wednesday
Week 9 Wednesday ECON 22061-001
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This 2 page Class Notes was uploaded by Marissa McKinney on Wednesday October 28, 2015. The Class Notes belongs to ECON 22061-001 at Kent State University taught by Dandan Liu (P) in Summer 2015. Since its upload, it has received 23 views. For similar materials see Principles of Macroeconomics in Economcs at Kent State University.
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Date Created: 10/28/15
Week 9 Monday 1028 The feds 3 tools of monetary control 0M0 when the central bank buys bonds more money will be available more money can be put in banks more loans can be made then essentially the money supply will rise If the govt needs to reduce the money supply they sell the bonds which will take money out of circulation reversing the above process Practice 5 A The feds 3 tools of monetary control 2 reserve requirements rr To increase money the fed reduces the rr or to reduce money the fed raises rr Fed rarely uses this because it is too powerful 3 discount rate Whenever they want to increase money supply they will lower discount rate encouraging banks to borrow The discount rate is totally at control of the central bank But if they want to reduce the money supply they can raise the discount rate Also not used very often Commercial banks don39t want to borrow from the central bank because they don39t want to show they have problems If the commercial bank goes to borrow they must be in big trouble and very desperate To decrease money supply they can sell bonds or raise the discount rate The federal funds rate Over night interest rate the quickest interest rate The most fundamental interest rate If the federal funds interest rate increase all other interest rates increase as well Monetary policy and the fed funds rate If the central bank sells bonds the equilibrium will rise Bank Runs and the money supply Vivid term for bank failure If a bank closes that will scare other banks so they will make fewer loans However they increase r and the money supply will decrease