Lecture 7_FED - Lecture 7 Interest Rate Policy L7 Xiaoding...

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Unformatted text preview: Lecture 7 Interest Rate Policy L7 Xiaoding Liu 1 FIN4243 Fall 2009 Goal • The goal of the US Federal Reserve are to manage the money supply in order to – Keep inflation low, between 0% to 3% – Promote economic growth – Full employment • Influence interest rate L7 Xiaoding Liu FIN4243 Fall 2009 2 Monetary Policy Tools • Four interest rate tools of the Federal Reserve – Discount rate – Open market operations – Bank reserve requirements – Persuading banks to tighten or loosen their credit policies • Open market operations is the most commonly used L7 Xiaoding Liu 3 FIN4243 Fall 2009 Monetary Policy Tools • Discount rate – The rate at which banks can borrow reserves from the Fed – A lower rate tends to increase bank reserves, encourage lending, and decrease interest rates – A higher rate has the opposite effect, raising rates L7 Xiaoding Liu 4 FIN4243 Fall 2009 Monetary Policy Tools...
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This note was uploaded on 12/02/2009 for the course FIN 4243 taught by Professor Dudley during the Fall '08 term at University of Florida.

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Lecture 7_FED - Lecture 7 Interest Rate Policy L7 Xiaoding...

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