CH14 - 2009-11-2 Monetary Policy 1 Learning Objective 14.1...

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2009-11-2 1 Monetary Policy 1 Learning Objective 14.1 Monetary policy The actions the central bank takes to manage the money supply and interest rates to pursue its economic objectives rates to pursue its economic objectives. 1 Price stability The Goals of Monetary Policy In USA, the Fed has set four monetary policy goals that are intended to promote a well-functioning economy: 2 High employment 3 Economic growth 4 Stability of financial markets and institutions 2
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2009-11-2 2 Learning Objective 14.1 Price Stability FIGURE 14.1 The Goals of Monetary Policy The Inflation Rate, 1952–2006 3 Learning Objective 14.1 High Employment The goal of high employment extends beyond the The Goals of Monetary Policy The goal of high employment extends beyond the Fed to other branches of the federal government. Economic Growth Policymakers aim to encourage stable economic growth because stable growth allows households growth because stable growth allows households and firms to plan accurately and encourages the long-run investment that is needed to sustain growth. 4
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2009-11-2 3 Learning Objective 14.1 Stability of Financial Markets and Institutions When financial markets and institutions The Goals of Monetary Policy When financial markets and institutions are not efficient in matching savers and borrowers, resources are lost. Summary 5 Although the Fed has multiple monetary policy goals, the most important monetary policy goals during most periods have been price stability and high employment . Learning Objective 14.2 The Fed tries to keep both the unemployment Monetary Policy Targets and inflation rates low, but it can’t affect either of these economic variables directly . The Fed uses variables, called monetary policy targets , that it can affect directly and that, in turn, affect variables that are closely related to the Fed’s policy goals, such as real GDP, employment, and the price level.
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This note was uploaded on 02/22/2010 for the course FBE ECON1002 taught by Professor Rao during the Spring '10 term at HKU.

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CH14 - 2009-11-2 Monetary Policy 1 Learning Objective 14.1...

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