ECO 202 Milestone Three - Aundrea Bourque.pdf - The 1980s...

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The 1980s: The Decade of ExcessAundrea BourqueECO 202Dr. Hunter1
ECO 202Monetary PolicyThe Federal Reserve controls monetary policy in the U.S. and has four main goals: price stability, high employment, economic growth, and financial market stabilityThe Federal Open Market Committee is the Fed’s policy-making body that enacts policies to achieve the goals of the Federal ReserveFrom the late 1970s to the 1980s, drastic changes in the way that the FOMC pursued these goals occurredThe FOMC seeks to promote the goals of maximum employment, stable prices, and moderate long-term interest rates when enacting new policies. The Fed can achieve these monetary goals through targeting the quantity of money (measured by money aggregates) and targeting the price of money (the federal funds rate)2
ECO 202Monetary Policy Actions and ImpactAt the end of the 1970s, the Fed targeted monetary policy through the price of bank reserves and the tightness or ease of the policy was determined by the federal funds rateIn the beginning of the 1980s, there was a major shift from the price control method to controlling the quantity of money in non-borrowed reservesIn 1979, the standard monetary policy was to control monetary goals through setting a federal funds rate target and then allowing the Federal Reserve Bank of New York to buy and sell securities through open market operations to reach the desired target. Unfortunately through Keynesian economics in the 1970s, inflation was at an all-time high because the monetary policy was trying to reduce unemployment below a

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