14.Monetary Policy

14.Monetary Policy - real GDP, employment, and the price...

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Monetary Policy Monetary Policy – the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy goals Goals of Monetary Policy 1. Price Stability 2. High Employment 3. Stability of financial markets and institutions 4. Economic Growth The Fed tries to keep both the unemployment and inflation rates low, but it cant affect either of these economic variable directly. The Fed uses variables, called monetary policy targets, that it can affect directly and that, in turn, affect variable that are closely related to the Fed’s policy goals, such as
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Unformatted text preview: real GDP, employment, and the price level Federal funds rate- the interest rate banks charge each other for overnight loans Changes in interest rate will not affect government purchases, but they will affect other three components f aggregate demand (1) consumption (2) Investment (3) Net Export Expansionary Monetary Policy the Federal Reserves increasing money supply and decreasing interest rate to increase real GDP Contractionary Monetary Policy the Federal Reserves adjusting the money supply to increase interest rate to reduce inflation...
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