34. Use of the multiplier to calculate total change in checking account deposits a.$1,000 deposited at BOAb.$1,000 x (1/0.1) = $10,000c.with rr = 0.10 the increase in M1 is 10 times the initial increase in reserves ($1,000)i.Note: Real world deposit multiplier = 1.6 35. Monetary Policy: involves actions the Fed takes to manage the money supply and interest rates and to ensure the flow of funds from lenders to borrowers. The Fedtakes these actions to achieve macroeconomic policy objectives like high employment, price stability, high rates of economic growth, and the stability of the financial system (they can lower interest rates which increase consumption and investment spending which shifts AD to the right) (Federal Reserve: ∆interest rates)36. In recession versus inflationary situationa.37. The Federal Reserve was created in year 1913 by Congressa.independent from prez and Congressi.doesn’t have to go to Congress for funding38. Monetary policy is one of the major responsibilities of the Fed39. The FOMC– Federal Open Market Committee
40. The goals of monetary policy 41. Monetary policy affects the U.S. economy through Open Market Operations which affect _____42. The money market; money demand (Md) and money supply (Ms)a.define Md--people hold money because … i.negatively related to i, as i rises Mdfallsii.represents the transactions demand for money iii.Md= f (Y, P)1.∆Y > 0 increase the demand for money for transactions2.∆P > 0 increase M1 required to pay for transactionb.the opportunity cost of holding money (M1)c.Msis controlled by the Federal Reserve; it is verticali.OMP shifts Msto the rightii.OMS shifts Msto the left43. OMO in the case of recession; impact on Loanable Funds market, money market and the economy
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