Chapter 31 Monetary Policy

Chapter 31 Monetary Policy - Chapter 31 Monetary Policy...

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Chapter 31 Monetary Policy Monetary policy is a policy of influencing the economy through changes in the banking system’s reserves that influence the money supply and credit availability in the economy. The effect of monetary policy on aggregate demand is not direct, rather it affects aggregate demand indirectly through short term and long term interest rates Expansionary monetary policy is a policy that increases the money supply and decreases the interest rate. It tends to increase both investment and output Contractionary monetary policy is a policy that decreases the money supply and increase the interest rate Central bank is a type of banker’s bank whose financial obligations underlie an economy’s money supply – THE FED Fed is composed of o 12 regional banks o Main FED reserve bank Fed is governed by seven member Board of Governors Members of BOG plus president of New York fed and rotating group of four presidents of orther regional banks are voting members of the federal open market committee the chief body of monetary policy President appoints each governor for a term of 14 years, although most governors choose not to complete them o One of which is the chairperson of the FED (Ben Bernanke)
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Chapter 31 Monetary Policy - Chapter 31 Monetary Policy...

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