Tools of Monetary Policy I

Tools of Monetary Policy I - Tools of Monetary Policy I...

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Tools of Monetary Policy I From Last Time Is the basic purpose of the Fed to "churn" the economy? No, although some would argue that that has been one of its results. What exactly is the role of businessmen as directors> District Bank directors select a bank president who attends the meetings of the Open Market Committee. The principal-agent view is an explanation of the Fed's behavior. The basic premise is that the Fed acts so as to increase its power and prestige. So, the Fed will try to accommodate the wishes of Congress and the President because they have the ability to reduce the Fed's power. The Fed will also attempt to increase its power. So, back in 1980, for example, the Fed got the power to set the reserve requirements for non-member banks. Open Market Operations A large component of the money supply is produced by banks. The existence of this private money means that the Fed has less than perfect control of the money supply. The money supply is a multiple of the monetary base. The base is produced by the Fed. We will look at the tools the
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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Tools of Monetary Policy I - Tools of Monetary Policy I...

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