ECO 202 Milestone Three.pptx - Final Project Milestone...

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ECO 202Final Project Milestone ThreeECO 202PETER ERRERA
ECO 202Monetary Policy: WWIIApril 1942: Federal Reserve agrees to set a low interest rate peg of 3/8 percent. Fed caps the rate on long-term Treasury bonds at 2.5 percent.This allowed cheaper debt financing.
ECO 202Creating the Modern Federal ReserveInflation rose to 17.6% in 1947 after the end of price controlsThe fed wanted to do something about the inflation, but at that time did not have the authority to do so. 1951 Treasury-Federal Reserve Accord
ECO 202Monetary Policy Action: Increase interest ratesIntended effects:Decrease expected inflationincreased interest rates curtail spending, which slows the economy and decreases inflationThis will cause a shift in the aggregate demand from AD1 to AD2. Figure one: Aggregate Demand Shifts
ECO 202Monetary Policy Impact- Did it Work?Not Quite.Inflation was not as bad as expectedInterest rates were still increased to combat the inflationDemand-driven recession

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