Monetary Policy by gvwf5Cc4

VIEWS: 3 PAGES: 42

									http://economistsview.typepad.com/economistsview/2011/03/fast-facts-about-
radiation.html
What is Money?
1) medium of exchange
2) unit of accounting
3) store of value
What is Money?
1) commodity money Has value in exchange
                   Has value as a commodity

2) fiat money    Has value in exchange ONLY
                 Has NO value as a commodity
What is Money?
1) medium of exchange
2) unit of accounting
3) store of value
http://economistsview.typepad.com/economistsview/2010/06/rudebusch-the-feds-exit-strategy-for-monetary-policy.html




      http://www.youtube.com/watch?v=pVmxQsvj6lo&feature=related


                 http://www.frbsf.org/education/fedville/currency7.cfm


        http://www.federalreserve.gov/monetarypolicy/mpr_default.htm

       http://www.frbsf.org/publications/federalreserve/monetary/tools.html
                Narayana Kocherlakota,
President of the Federal Reserve Bank of Minneapolis,
               2009 Annual Report, p. 3
I believe that during the last financial crises,
macroeconomists (and I include myself among
them) failed the country, and indeed the world.

In September 2008, central bankers were in
desperate need of a playbook that offered a
systematic plan of attack to deal with fast-evolving
circumstances.

Macroeconomics should have been able to provide
that playbook. It could not.
Of course, from a longer view, macroeconomists let
policymakers down much earlier, because they did
not provide policymakers with rules to avoid the
circumstances that led to the global financial
meltdown.



    FASCISM!!!!
Monetary policy is the process by which
the monetary authority of a country
controls the supply of money, often
targeting a rate of interest for the
purpose of promoting economic growth
and stability.
             (Wikipedia)
The term monetary policy refers to the
actions undertaken by a central bank,
such as the Federal Reserve, to influence
the availability and cost of money and
credit as a means of helping to promote
national economic goals.                                   (Federal Reserve)

http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm
     Edmond S. Phelps,
     Nobel Laureate in Economics 2006




The upshot of my work is that the function of the
Central Bank is to manage expectations of
inflation. That’s what the whole game is about. I
think that basic message is widely know in the
Central Banking fraternity.             http://nobelprize.org/mediaplayer/index.php?id=148
Expansionary (loose)
  Increases the supply of money
  Used to close a contractionary GDP gap
     to boost the economy out of a recession
Contractionary (tight)
  Decreases the supply of money
  Used to close an expansionary GDP gap
     to stop the economy from “overheating”
Expansionary (loose) Monetary Policy
“quantitative easing”
Contractionary (tight) Monetary Policy
Expansionary Monetary Policy
               Expansionary Monetary Policy
M1 money =
Currency
Coins
Checking accounts

M2 money =
M1
Savings accounts
Small time deposits

M3 money =
M2
Large time deposits
Money market acc.
Govt. securities

L
Expansionary Monetary Policy
Deposits Req’d Required      Excess    Loans
         Reserve Reserves   Reserves
          Ratio
$1,000 20%        $200       $800       $0
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000 20%        $200      $0       $800
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $160     $640      $800
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $160       $0      $1,440
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $160       $0      $1,440
$2,240
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $160       $0      $1,440
$2,240   20%      $128     $512      $1,440
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $160       $0      $1,440
$2,240   20%      $128       $0      $1,952
$2752
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$1,000    20%     $200      $0       $800
$1,800   20%      $360       $0      $1,440
$2,240   20%      $488       $0      $1,952
$2,752   20%      $590       $0      $2,362
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$2,752    20%     $590      $0       $2,362
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$2,752    20%     $590      $0       $2,362
                           $1,000
Deposits Req’d Required Excess       Loans
         Reserve Reserves Reserves
          Ratio
$2,752    20%     $590      $0       $2,362
                           $1,000    $3,362
$3,752

								
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