econ423lec11

econ423lec11 - 7/6/2009 1 MONETARY POLICY, PART II MONETARY...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 7/6/2009 1 MONETARY POLICY, PART II MONETARY POLICY, PART II JULY 6 TH , 2009 Lauren Heller Econ 423, Financial Markets The Plan for Today b Midterm Exam Debriefing b Course Evaluation Debriefing b The Market for Reserves b The Effects of Monetary Policy b Targeting b Monetary Aggregates b Interest Rates b Homework #4 Distributed Midterm Exam Debrief b Exam Statistics b Average: 83.46% b Maximum: 97.7% b Exam Solutions Posted Online b Look them over, compare with your own. b Remember Final Exam is cumulative b Fed Extra Credit b point for every 4, rounded up b point for North Carolinas Federal Reserve Bank Course Evaluation Debrief b Homework Quizzes b Generally, the class preferred these to alternatives, but. b Some indicated theyd like to be able to show work, especially on multiple choice questions. b Laurens proposed improvement: b If youd like to show work, attach it and indicate that youve done so on the quiz question itself b Incorrect answers with correct work will receive partial credit. Course Evaluation Debrief b Lecture Suggestions b More Sample Homework and Quiz Questions in class b Will do! (as much as we can) b Other suggestions? Let me know! Recall from last time b All banks maintain deposits with the Fed, known as reserves . b Any reserves deposited with the Fed beyond the required reserve ratio are known as excess reserves . b Open market purchases increase the money supply, while open market sales decrease the money supply. b An increase in the amount of discount loans by the Fed leads to an increase in reserves, and an expansion of the money supply. 7/6/2009 2 Establishing the Federal Funds Rate The Market for Reserves Some terms to remember b The federal funds rate is the interest rate at which banks make overnight loans of reserves to one another. b Reserve requirements are the regulations that mandate a certain fraction of reserves be kept by each bank at the Fed. b Nonborrowed reserves (NBR) are those that are supplied by open market operations b Borrowed reserves (BR) are the reserves directly borrowed from the Fed through discount lending. The Demand for Reserves b Remember that the amount of reserves held by a bank can be split into 2 components: b Required Reserves b Excess Reserves Insurance against a reduction in deposits. b Holding excess reserves involves opportunity cost b Could have earned interest by lending them out b As the federal funds rate decreases, the opportunity cost of holding excess reserves falls . The Demand for Reserves b What does this imply about the demand curve for reserves? b Demand curve slopes down because as i ff , excess reserves and R d increases....
View Full Document

Page1 / 10

econ423lec11 - 7/6/2009 1 MONETARY POLICY, PART II MONETARY...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online