24 how does the fed increase or decrease the money

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24. How does the Fed increase or decrease the money supply? Answer: open market
operations (OMO). Define open market purchase (OMP). Open market sale (OMS).
 OMO-How the Fed increases or decreases the money supply
 OMP- Fed buys Bonds offered for sale in bond market (m s increases so m s shifts right)
 OMS- Fed sells Bonds to HH”s who want to buy (m s decreases so m s shifts left)
25. How does an increase (decrease) in the money supply affect interest rates?
 Increase money supply= lower interest rates
 Decrease money supply= higher interest rates
26. How does the Federal Reserve combat recession? This is called MONETARY
(expansionary; contractionary) policy.
 Shift AD to right
27. What is the fiscal cliff? How could monetary policy offset the effects of a fiscal cliff?
 Tax cuts and gov’t programs are ending 1-2-13
How could fiscal policy offset the effects of a fiscal cliff? In each case, does the price level end
up higher or lower than it would if there was no policy intervention and the economy adjusted on
its own , i.e., through the automatic adjustment mechanism.
28. Suppose the U.S. economy is experiencing an inflationary boom. How can fiscal or
monetary policy offset the effects of the boom and restore output to potential? In each case,
does the price level end up higher or lower than it would if there was no policy intervention and
the economy adjusted on its own , i.e., through the automatic adjustment mechanism.
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29. What is the monetary policy transmission mechanism?
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--Employment Report for November
 7.7% 146,000 CREATED 98,000 EXPECTED
--Outcome of FOMC meeting this week with respect to the setting of interest rates and why.