summary_slideshow_nov30

summary_slideshow_nov30 - falls Expectations can be...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
When the FOMC lowers its target federal funds rate FOMC orders regional Federal Reserve Banks to use their cash holdings to buy securities (U.S. government bonds) on the secondary bond market When the sellers of the bonds deposit their checks, the money supply increases The total increase in the money supply depends on the reserve ratio (money- multiplier)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
When risk rises Lenders refuse to make loans without higher compensation for the risk M2-growth falls as the money-multiplier falls (bank reserve ratios rise) Loans are difficult to get and their price (r) rises (leftward shift of M-Supply in money- market graph) I falls as firms can’t afford to borrow, AD
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: falls Expectations can be self-fulfilling (we saw Constraints on current US/EU policy Fiscal policy options limited by high borrowing costs (risk high so r is high) and the impact that will have on debt/GDP ratios that are already unsustainably high Monetary policy options are limited as overnight inter-bank lending rates, which are controlled by policy, are already as low as policy-makers can get them (nearly zero) Things to notice: (1) The federal funds rate seems to fall late into each recession (inside lags are evident, economy may be recovering on its own) (2) The Feds exhausted its ability to use OMOs right now...
View Full Document

Page1 / 4

summary_slideshow_nov30 - falls Expectations can be...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online