Monetary Policy

Monetary Policy - Chapter 12 Review Monetary Policy:...

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Chapter 12 Review Monetary Policy: consists of central bank’s (The Fed) manipulation of the money supply. Monetary Policy Rule: describes the systematic response of the real interest rate to inflation as decided by the central bank. Chapter 15: Monetary Policy Central bank independence : independent central bank can prevent the government in power from using monetary policy in ways that appear beneficial in the short run but than can harm the economy in the long run. Gain then Pain Scenario : Fed will temporarily stimulate the economy in the short run- real GDP rises above potential GDP. But soon inflation starts to rise. In the long run, the inflation rate is higher and real GDP is back to potential. o Shows that central banks can lower unemployment below the natural unemployment rate in the short run, but by doing so will raise inflation in long run. QuickTimeª and a decompressor are needed to see this picture. Phillips Curve
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This note was uploaded on 12/07/2009 for the course ECON 19993 taught by Professor Helms during the Spring '09 term at UC Davis.

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Monetary Policy - Chapter 12 Review Monetary Policy:...

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