Transcript Monetary Policy

Monetary Policy
Chapter 15
Chapter 15 Table
15.1
Fed Assets and Liabilities
Fed Assets and Liabilities
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The Principal Asset is U.S. Treasury Bonds
(Securities)
The Principal Liability is Federal Reserve Notes
Outstanding
These nearly balance because the bonds were
acquired putting the dollars into circulation
The Fed’s available stock of bonds could be used
to remove the dollars from circulation
Bonds expire – dollars don’t
Chapter 15
Figure 15.1
Putting Money into Circulation
Chapter 15 Table
15.2
Changing the Reserve Ratio
Chapter 15
Figure 15.2(a)
The Impact of Changing the
Money Supply on the Interest Rate
How Changing the Money Supply and the
Interest Rate affect Investment Spending
Chapter 15
Figure 15.2(b)
How Monetary Policy Affects Real
Output and Employment
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Increasing the Money Supply lowers interest rates
Lower interest rates lead to more borrowing and
higher Investment spending (Ig)
Increasing AE and AD
Resulting in higher equilibrium GDP
And higher employment
But higher prices (inflation)
Chapter 15
Figure 15.2(c)
Chapter 15 Table
15.3
Chapter 15
Figure 15.3
The Federal Funds Rate determines other
Interest Rates
Chapter 15 Table
15.4
Chapter 15
Figure 15.4(a)
Public Policy and AS
Chapter 15
Figure 15.4(b)
Fiscal and Monetary Policy and AD