1. Monetary Policy and the fed
Part two module 5 quiz revisited

2. Three tools of monetary policy
Tool number one:
Open market: buy or sell securities on the open market
Increase money supply: buy securities
Decrease money supply: sell securities

3. Three tools of monetary policy
Tool number two
∆ discount rate:
When the Fed lowers the discount rate, banks are encouraged to make more loans and the money supply increases.
Discount rate money supply

4. Tool number two
∆ discount rate:
When the Fed raises the discount rate, banks are discouraged from making loans and the money supply decreases.
Discount rate money supply

5. Three tools of monetary policy
Tool number three
∆ reserve requirement
When the Fed lowers the reserve requirement, banks have more money to lend and the money supply increases.
Reserve requirement: Money Supply:

6. From tools to objectives:
Three objectives of the monetary policy of the federal reserve:
Economic growth
Price stability
Full employment

7. What is inflation?
A general increase in overall prices in an economy in a given period of time
Too much money chasing too few goods and services

8. High unemployment and low gdp
What to do? Oh, dear! What to do?
Increase money supply by
Buying securities—puts more money back in circulation
Lowering the discount rate—encourages banks to make more loans (creating money)
Lowering reserve requirements for banks—banks can loan more of the deposits out

9. High inflation? What to do? Oh, dear! What to do?
Sell securities—takes money out of circulation
Raise discount rate—discourages banks from making loans
Raise reserve requirements—banks have less money to lend

10. Money, money money. Money!!!!!
Anything that is generally accepted as final payment for goods and services
Three purposes:
Medium of exchange: Buy things
Unit of account: $10 worth of items=$10 worth of items
Store of value: save for future purchases

11. Fractional reserve banking
Banks hold back a fraction of the deposits on account and lend the rest of the deposits out.