MONETFISCALPOLCLASS

MONETFISCALPOLCLASS - 1 1 Short-Run Monetary and Fiscal...

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Unformatted text preview: 1 1 Short-Run Monetary and Fiscal Policy What is Fiscal Policy? Monetary Policy? How do they each work? Lags pro-cyclical policy How effective are each? Algebra of Keynesian SR Model Multiplier, liquidity trap, discretionary policy, automatic stabilizers, and more 2 Fiscal Policy Demand Management Short-run Keynesian Shift demand Stabilization, counter-cyclical Fiscal Policy change G, T for stabilization purposes G D P,y T Y-T C D P,y Multiplier effect Partial crowding out G i I 3 Monetary Policy Fed Change in Ms -> changes agg D Ms i I D P,y Other channels Credit availability Exchange rates Demand shifts 2 4 Referring to monetary policy and fiscal policy, A. both shift aggregate supply B. both shift aggregate demand C. monetary policy shifts demand and fiscal shifts supply D. fiscal policy shifts demand and monetary shifts supply None of the above 5 In the News? 6 Course Issues Discussion board and clicker prizes Quiz 3 Thursday classes 4,5 Clicker update Extra Credit How to get it, and keep it Work, ask, answer, think DONT listen, read 3 7 Resumes and Advisement 2 8 Money and Interest Rates in the SR Monetary Theory Keynesian Demand for Money Liquidity Preference Theory Transactions, Precautionary M/P=f(y) + Speculative M/P=f(i) - Bond prices and interest rates Opportunity cost Punchline Ms i (Md i ) Fed controls the money supply aka Money Stock, Quantity of Money So Md and Ms i I D P,y Also Ms i $ X,M D P,y And Ms Sp W C D P,y and more 9 Money Creation and Fed Fed buys a bond from primary dealer Wires funds to his checking account at bank His deposits increase - M1 increases Fed credits banks reserve account More reserves, Fed funds rate drops as bank can lend more More excess reserves so banks makes additional loans These loans become additional deposits and thus M1 up more Ultimately, M1 increases by 1/RRR x initial bond purchase Punch lines Fed controls reserves, Ms, and funds rate (and other short- term rates) thru open market ops Banks make loans, create deposits (money) Multiple creation throughout system 4...
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This note was uploaded on 03/24/2011 for the course ECON 103 taught by Professor Lin during the Summer '08 term at Rutgers.

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MONETFISCALPOLCLASS - 1 1 Short-Run Monetary and Fiscal...

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