Menu_03_Apr_06

Menu_03_Apr_06 - (+) d. Graphical representation 2. Money...

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TODAY’S MENU: Monday 03 April 2006 I. BUSINESS A. Practice Problems 1. Chapter 14: 1-9 B. Third exam: Three weeks from today (24 April) II. SUBSTANCE A. “Monetary policy as stabilization policy” or “The Fed revisited” 1. Introductory comments 2. Policy stated in terms of target for federal funds rate 3. Tool for achieving policy goals: Open Market Operations B. Determination of the nominal interest rate: the Money Market 1. Money Demand a. Definition b. Determinant: Change in quantity demanded i. Nominal interest rate (i) (-) c. Determinants: Change in demand i. Income (y) (+) ii. Aggregate Price Level (P)
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Unformatted text preview: (+) d. Graphical representation 2. Money Supply a. Function of Fed policy b. Determinants: Change in supply i. Increase: Open Market Purchase ii. Decrease: Open Market Sale 3. Equilibrium: quantity demanded = quantity supplied (as always) 4. Examples C. How does the Fed control the real interest rate? 1. Recall: r = i e 2. Open market operations control i 3. In the short run, expected inflation rates do not change III: NEXT TIME A. Continue Chapter 14: Stabilizing the Economy: The Role of the Fed...
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