A student asked, “Since electrical potential is always proportional to potential energy, why bother with the concept of potential at all?” How would you respond?
March 14th 1. Money a. Money is a commodity b. Paper money is called “Fiat” i. The Federal Reserve prints it 1. Ensure minimum inflation rates to maintain value ii. China was the first country to introduce fiat currency 2. Role of Money a. Medium of Change i. Used for daily transactions b. Unit of Account i. Used to price goods and services c. Store of Value i. Used for savings 3. Bitcoins a. Completely digital cryptocurrency b. Mined on the internet c. Advantages of bitcoin i. Single currency without an exchange rate ii. No transaction fee 4. Federal Reserve System a. Headquarters Board of Government, in DC b. 12 Regional Reserve Banks i. San Francisco ii. Kansas City iii. St. Louis iv. Minneapolis v. Chicago vi. Cleveland vii. Boston viii. New York City ix. Philadelphia x. Richmond xi. Atlanta xii. Dallas c. FOMC Federal Open Market Committee i. Consists of Chair (Janet Yellen), 6 Political chairs, 12 Regional chairs d. Federal Funds Interest Rate i. A target interest rate ii. Banking Institutions March 16th 1. Central Banks a. US became a manufacturing economy in the 20th century; before that it was still an agricultural economy b. The Fed is used to manage interest rates to control fluctuations in GDP growth 2. Monetary Policy a. Open Market Operations (OMO) i. Adjust bank excess reserves b. Change in the discount rate c. Change in the reserve requirement rates 3. Open Market Operations a. Big Picture i. Federal Open Market Committee meets in March ii. #1 concern is inflation (Threshold is ~2% inflation rate) iii. Lag in monetary policy: if the fed goes up in March as a result GDP growth should show, but this lag should only show up 6 12 months after 1. The Fed is looking ahead to the Fall & Winter of 2016 b. OMO Steps i. Restrictive Monetary Policy 1. Increase interest rates to slow GDP growth 2. Reduce inflationary pressures ii. Steps 1. Fed sells US government debt to banks 2. Banks pay the market price to the fed a. This adjusts the Monetary Base (currency in circulation) b. The Fed is trading debt for cash reserves 3. a. Rff: Fed funds interest rate b. Dff: Demand for fed funds from banks that borrow in the fed funds market c. Sff: Supply of fed funds supplied by bank excess reserves 4. The fed adjusts the supply with OMO with restrictive monetary policy. This causes a drop in Sff: Sff0> Sff1and an increase in Rff: Rff > Rff 0 1 4. Yield Curve a. Yield on similar risk assets over time b.