Money held for speculative purposes for later

This preview shows page 1 - 2 out of 2 pages.

money held for speculative purposes, for later financial opportunities Equilibrium rate of interest: the interest rate at which the quantity of money demanded in a given time period equals the quantity of money supplied THE FED CAN ALTER THE EQUILIBRIUM RATE OF INTEREST; By increasing the money supply, the Fed tends to lower the equilibrium rate of interest Federal funds rate : the interest rate for interbank reserve loans The ultimate goal of monetary stimulus is to increase aggregate demand. By reducing the cost of money for banks, the Fed expects banks to reduce interest rates for consumers. Aggregate demand : the total quantity of output demanded at alternative price levels in a given time period, ceteris paribus The fed’s goal of stimulating the economy is achieved in three distinct steps: An increase in the money supply A reduction in interest rates An increase in aggregate demand Bernanke’s policy guide in 2009: ¼ POINT REDUCTION in long-term interest rate = $50B fiscal stimulus Monetary restraint is achieved with: A decrease in money supply An increase in interest rates A decrease in aggregate demand The success of Fed intervention depends in part on how well changes in long-term interest rates mirror changes in short-term interest rates 1
Image of page 1

Subscribe to view the full document.

Image of page 2

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern