chapter 5 ppt - CHAPTER 5 Monetary Theory and Policy 1...

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1 CHAPTER 5 Monetary Theory and Policy
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2 CHAPTER 5 OVERVIEW This chapter will: A. Describe the impact of monetary policy B. Explain the tradeoffs involved in monetary policy C. Describe how financial market participants monitor and forecast the Fed’s policies D. Explain how monetary and fiscal policies are related
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3 A. Impact of Monetary Policy 1. Correcting a Weak Economy a. Fed can stimulate the economy by creating a loose-money policy and engages in 1.) buying government securities 2.) lowering the discount rate 3.) lowering the reserve requirement
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4 A. Impact of Monetary Policy 2. Correcting High Inflation a. The Fed can constrain economic activity when it creates a tight-money policy and 1.) sells government securities 2.) raises the discount rate 3.) increases the reserve requirement
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5 B. Tradeoff in Monetary Policy 1. The Tradeoff a. Studies indicate there exists an inverse relationship between inflation and unemployment the lower the unemployment, the greater the inflation, the higher the unemployment, the lower the inflation
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chapter 5 ppt - CHAPTER 5 Monetary Theory and Policy 1...

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