macrnotespart5

macrnotespart5 - Notes US central bank- Federal Reserve...

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Notes US central bank- Federal Reserve (The “Fed”)- a private entity (not part of our gov’t). How does government pay for its expenditures? o Taxes (income for government) o Print money (get Fed to print money) (must eventually be paid back w/tax $) o Borrow $ from other countries or from US citizens in the form of bonds. (must eventually be paid back w/tax $) M. Freedman- “Inflation is always & everywhere a monetary phenomenon.”- meaning when you see inflation it’s because the money supply has been increased. Dougan- “Hyperinflation is a fiscal phenomenon.” o Hyperinflation- persistent, high levels of inflation. o If a government is not fiscally responsible (i.e. they pay for spending with printed $) it will eventually lead to hyperinflation. How does the Fed alter the money supply? o Tools of the Fed: 1. Open market operations- purchase & sale of existing US government bonds (deal with private bond dealers) (Fed primarily uses this tool to alter money supply)
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macrnotespart5 - Notes US central bank- Federal Reserve...

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