Week 5 Individual - Will Running head: WILL BURY 1 Monetary...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Will 1 Running head: WILL BURY Monetary Policy Benita Swinners ECO 561/ Economics University of Phoenix Professor Assefa Muluneh, Ph.D. March 18, 2010
Background image of page 1

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

View Full DocumentRight Arrow Icon
Will 2 Monetary Policy An individual may ask him or herself, “What is monetary policy?” The answer is the way the Federal Reserve Board regulates the money supply and interest rates. The regulation of interest rates and money supply allows the board to control currency and stabilize inflation, maintaining price level stability full employment and economic growth (McConnell, 2004). A couple of important assets for the Federal Reserve Bank are securities and liabilities. Securities are what are known as treasury bills, treasury bonds and treasury notes. Each of the securities is based on terms i.e., the Treasury bill is a shortterm security, the bonds are longterm and the notes are mid term. The securities act as money that the government has borrowed. Most of the securities were purchased from banks (non federal) which are used to control a banks ability to create money through lending. Buying and selling of the securities affects the size of the banks reserves, which again can increase or decrease lending by a bank. Another asset is borrowing of funds by commercial banks from Federal Reserve banks. For example, Bank of American decides that they need to borrow more funds from the Federal Reserve Bank due to what is called open market operations. Open market operations mean that the sale of bonds and securities is open to everyone. So when John Johnson decides he wants to buy securities from the government, i.e. bond, notes or Treasury bill, and pays with a check from B of A, the Federal Reserve will clear Johns check against B of A’s Federal Reserve, thus lowering the reserves. Let’s imagine
Background image of page 2
Will 3 that a significant amount of people buy bonds, this increased amount will influence Bank of American into borrowing fund from the Federal Reserve. Along with assets there comes what is call liabilities. For the Federal Reserve Banks they are called commercial bank reserves, treasury deposits and Federal Reserve notes outstanding. Commercial banks are required by law to hold reserves against their checkable deposits. These deposits are assets by the bank but liabilities of the Federal Reserve. Treasury deposits are the deposits made by the U.S treasury. They are listed as assets to the U.S. treasury but liabilities to the Federal Reserve. The deposits can consist of tax receipts, money borrowed by the public or the sale of bonds (McConnell, 2004). Lastly Federal Reserve notes, which are notes mixed in with currency in response to an increased demand of currency. So when the notes are in circulation outside of the Federal Reserve they are counted as a liability, as demand declines these same notes will be retired.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

Week 5 Individual - Will Running head: WILL BURY 1 Monetary...

This preview shows document pages 1 - 4. Sign up to view the full document.

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