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Unformatted text preview: mber of people pursuing a smaller number of dollars, the interest rate increases until the demand starts to fall. A good example of this policy happened during the third quarter of 1979 and continued into 1982, when the Fed instituted a strong tight–money policy to try to stop inflation and stabilize the dollar. During this time of tight money we also saw the mood of the world change toward the Fed. Most of the world felt that the Fed would not keep the tight– money policy due to the unpopularity of this policy and political pressures. They therefore thought inflation in the United States would continue to run wild. So the world turned to precious metals, and the price of gold and silver shot to all–time records. Gold sold for over $800 per ounce. Even though the Fed came under attack, it continued its policy of tight money into 1982 and the inflation rate in the United States was reduced. Gold was less in demand, thus the price fell and gold was traded in the fourth quarter of 1981 in the $350– to $450– per–ounce range. With the price of gold falling and interest rates staying relatively high due to the Fed's tight–money policy, the demand by foreign investors for the American dollar increased. Thus, the value of the dollar increased against many foreign currencies. Dynasty School (www.dynastySchool.com) 5-7 REAL ESTATE FINANCE
Easy money is just the opposite of tight money. The Fed's easy–money policy is to reduce the reserve requirements and lower the discount rate. This is usually implemented in a time of recession; the Fed uses this policy to stimulate the economy. It increases the supply of money, thus making it easier for business and individuals to get credit. As credit becomes available, companies can expand, hire more people, and increase salaries. As these monies go into the banks and thrift institutions, it tends to make more money available, and thus the cycle begins again. How can these policies affect the real estate industry? In the second half of 1979, when the Fe...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10