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november 28 2007 - federal fund rate by.5 percent PG 273...

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Cyclical asymmetry- when the fed requires money for expansion but is not used. Velocity of money- the turnover ratio of dollars spent within the economy, on final goods and services during a year. The fed provides money and lower interest rates but the economy is not moving. Three ways we can target federal funds. The best way to mitigate inflation 1) Artful management- tweaked monetary policy to fill their needs. 2) Inflation targeting- the fomc will set for a 2 year time what inflation will be. If inflation is higher they go into a restrictive policy, if it is lower they go into a expansionary. The fed is politically independent. Pg 270 The Taylor rule- 3 parts inflation, gdp, and everything. Its an objective way we should monitor objectives. Congress likes to control things. This artful management A1. if real gdp is less inflation rises by a percent above real gdp the fed will raise the
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Unformatted text preview: federal fund rate by .5 percent. PG 273 cyclical deficits – a deficit caused by the business cycle. Tight money means a restrictive monetary policy. Expansionary monetary policy- soft money. Easy money. When the fed buys bonds, buying means . excessive reserves increase , money supply increase, bank reserves increase, the federal fund rate decrease. Investment spending increase, real gdp increase. When you sell your taking liquidity from the system. Money can be created and money can be destroyed. A money multiplier. This money multiplier will tell you how much excess reserves can support loans. 5 questions for Monday you may not know. Ben bernaky is the fed chairman Hank Paulson is the secretary of treasury....
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