Lecture 18 Monetary Policy

Lecture 18 Monetary Policy - What is Monetary Policy?...

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What is Monetary Policy? Federal Reserve: The central bank of the United States. Monetary policy: The actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic objectives. To manage the money supply, the Fed uses three monetary policy tools: 1. Open market operations: The buying and selling of Treasury securities by the Federal Reserve in order to control the money supply. 2. Discount policy: By lowering the discount rate, the Fed can encourage banks to take additional loans and thereby increase their reserves. With more reserves, banks will make more loans to households and firms, which will increase checking account deposits and the money supply. A decrease in the discount rate also results in a decrease in the interest rates charged on loans. Discount Rate: The interest rate the Federal Reserve charges on discount loans, loans made to the other banks. 3.
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This note was uploaded on 04/04/2012 for the course ECON 010 taught by Professor Stein during the Fall '07 term at UPenn.

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Lecture 18 Monetary Policy - What is Monetary Policy?...

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