assign7 - Intro Macro N. Sheflin ASSIGNMENT 7 NOTES: We...

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I n t r o M a c r o N . S h e f l i n ASSIGNMENT 7 NOTES : We introduce the Fed, discuss monetary theory (how money ‘matters’). and short-run monetary policy in the Keynesian model Don’t worry about ( ignore ) any reference to long-run policy issues for now. We’ll come back to this in more depth later in the course. Also, we’ll play a short run monetary policy game– the Chairman’s game Investment Game Round 2 – read, short, margin LOTS OF IMPORTANT NOTES AT BOTTOM OF ‘PAGE’ ON MONETARY POLICY READING Rittenberg Chapter 9 – just the last section on the Fed “THE FEDERAL RESERVE SYSTEM” and chapter 11– skip the last section (3) on “MONETARY POLICY AND THE EQUATION OF EXCHANGE” – we’ll come back to this later. Ignore discussion of long-run for now and of rational expectations. A simple but a bit outdated intro to ‘normal’ monetary policy at http://www.frbsf.org/publications/federalreserve/monetary/index.html Krugman, on the liquidity trap: http://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is- in-a-liquidity-trap/ Fed Actions in the 2007-2009 Crisis http://www.federalreserve.gov/monetarypolicy/bst_crisisresponse.htm And MAYBE A very good, only somewhat dated introduction to Fed funds targeting “Setting The Interest Rate” http://www.frbsf.org/publications/economics/letter/2002/el2002-30.html (the main change is that the Fed adopted the passive discount rate policy mentioned, and in normal times, it is not set but rather moves with the funds rate; also, the fed is now paying interest on reserves). NY Fed’s Fedpoints at http://www.newyorkfed.org/aboutthefed/fedpoints.html Discount Window Federal Funds Open Market Operations Primary Dealers Repurchase and Reverse Repurchase Transactions
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480 And more details on the Fed and Monetary Policy at: http://www.frbsf.org/publications/federalreserve/monetary/index.html MULTIPLE CHOICE QUESTIONS - ihw7 FIND CURRENT ARTICLES ON Fiscal/ Monetary policy, Goals, Tools, Targets of Fed Policy, Fed Funds Market. Monetary policy lags, interest rates, liquidity trap APPLICATIONS 1. Select and explain 4 points/terms made in the latest FOMC statement found through http://www.federalreserve.gov/fomc/default.htm (goals, tools, targets, economic conditions) 2. Play the ‘Chairman’s Game” at: http://www.frbsf.org/education/activities/chairman/ a. click on “learn more” b. look at the videos at “policy in depth” c. look over the “economic dictionary” d. play the game – try to achieve the twin goals of stable prices and maximum employment i. what unemployment and inflation rates did you start with? End with? ii. What effect did raising the fed funds target rate have? Why? How quickly? BIG QUESTIONS
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assign7 - Intro Macro N. Sheflin ASSIGNMENT 7 NOTES: We...

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