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Interest Rates and Monetary Policy

Содержание

Interest RatesThe price paid for the use of moneyMany different interest ratesSpeak as if only one interest rateDetermined by the money supply and money demandLO133-

Слайды и текст этой презентации

Слайд 1Interest Rates and Monetary Policy
McGraw-Hill/Irwin
Copyright ©

2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Interest Rates and Monetary PolicyMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All

Слайд 2Interest Rates
The price paid for the use of money
Many different

interest rates
Speak as if only one interest rate
Determined by the

money supply and money demand

LO1

33-

Interest RatesThe price paid for the use of moneyMany different interest ratesSpeak as if only one interest

Слайд 3Demand for Money
Why hold money?
Transactions demand, Dt
Determined by nominal GDP
Independent

of the interest rate
Asset demand, Da
Money as a store of

value
Varies inversely with the interest rate
Total money demand, Dm

LO1

33-

Demand for MoneyWhy hold money?Transactions demand, DtDetermined by nominal GDPIndependent of the interest rateAsset demand, DaMoney as

Слайд 4Demand for Money
Rate of interest, i percent
10
7.5
5
2.5
0
Amount of money
demanded
(billions of

dollars)
Amount of money
demanded
(billions of dollars)
Amount of money
demanded and supplied
(billions of

dollars)

=

+

(a)
Transactions
demand for
money, Dt

(b)
Asset
demand for
money, Da

(c)
Total
demand for
money, Dm
and supply

Dt

Da

Dm

Sm

5

LO1

33-

Demand for MoneyRate of interest, i percent107.552.50Amount of moneydemanded(billions of dollars)Amount of moneydemanded(billions of dollars)Amount of moneydemanded

Слайд 5Assets
Securities
Loans to commercial banks
Liabilities
Reserves of commercial banks
Treasury deposits
Federal Reserve Notes

outstanding
LO2
Federal Reserve Balance Sheet
33-

AssetsSecuritiesLoans to commercial banksLiabilitiesReserves of commercial banksTreasury depositsFederal Reserve Notes outstandingLO2Federal Reserve Balance Sheet33-

Слайд 6Tools of Monetary Policy
Open market operations
Buying and selling of government

securities (or bonds)
Commercial banks and the general public
Used to influence

the money supply
When the Fed sells securities, commercial bank reserves are reduced

LO2

33-

Tools of Monetary PolicyOpen market operationsBuying and selling of government securities (or bonds)Commercial banks and the general

Слайд 7Tools of Monetary Policy
Fed buys bonds from commercial banks

Federal Reserve

Banks
+ Securities
+ Reserves of Commercial Banks


(b) Reserves
Commercial Banks
Securities (a)
+Reserves (b)
Assets
Liabilities

and Net Worth

LO2



(a) Securities

33-

Tools of Monetary PolicyFed buys bonds from commercial banksFederal Reserve Banks+ Securities+ Reserves of Commercial Banks(b) ReservesCommercial

Слайд 8Tools of Monetary Policy
Fed sells bonds to commercial banks
Federal Reserve

Banks
- Securities
- Reserves of Commercial Banks
Commercial Banks
+ Securities (a)
- Reserves

(b)

Assets

Liabilities and Net Worth



(a) Securities



(b) Reserves

LO2

33-

Tools of Monetary PolicyFed sells bonds to commercial banksFederal Reserve Banks- Securities- Reserves of Commercial BanksCommercial Banks+

Слайд 9Tools of Monetary Policy
The reserve ratio
Changes the money multiplier
The discount

rate
The Fed as lender of last resort
Short term loans
Term auction

facility
Introduced December 2007
Banks bid for the right to borrow reserves

LO2

33-

Tools of Monetary PolicyThe reserve ratioChanges the money multiplierThe discount rateThe Fed as lender of last resortShort

Слайд 10Tools of Monetary Policy
Open market operations are the most important
Reserve

ratio last changed in 1992
Discount rate was a passive tool
Term

auction facility is new
Guaranteed amount lent by the Fed
Anonymous

LO2

33-

Tools of Monetary PolicyOpen market operations are the most importantReserve ratio last changed in 1992Discount rate was

Слайд 11The Federal Funds Rate
Rate charged by banks on overnight loans
Targeted

by the Federal Reserve
FOMC conducts open market operations to achieve

the target
Demand curve for Federal funds
Supply curve for Federal funds

LO3

33-

The Federal Funds RateRate charged by banks on overnight loansTargeted by the Federal ReserveFOMC conducts open market

Слайд 12Monetary Policy
Expansionary monetary policy
Economy faces a recession
Lower target for Federal

funds rate
Fed buys securities
Expanded money supply
Downward pressure on other

interest rates

LO3

33-

Monetary PolicyExpansionary monetary policyEconomy faces a recessionLower target for Federal funds rateFed buys securities Expanded money supplyDownward

Слайд 13Monetary Policy
Restrictive monetary policy
Periods of rising inflation
Increases Federal funds rate
Increases

money supply
Increases other interest rates

LO3
33-

Monetary PolicyRestrictive monetary policyPeriods of rising inflationIncreases Federal funds rateIncreases money supplyIncreases other interest ratesLO333-

Слайд 14Taylor Rule
Rule of thumb for tracking actual monetary policy
Fed has

2% target inflation rate
If real GDP = potential GDP and

inflation is 2%, then targeted Federal funds rate is 4%
Target varies as inflation and real GDP vary

LO3

33-

Taylor RuleRule of thumb for tracking actual monetary policyFed has 2% target inflation rateIf real GDP =

Слайд 15Expansionary Monetary Policy
Problem: Unemployment and Recession
Fed buys bonds, lowers reserve

ratio, lowers the discount rate, or increases reserve auctions
Excess reserves

increase

Federal funds rate falls

Money supply rises

Interest rate falls

Investment spending increases

Aggregate demand increases

Real GDP rises

















LO4


CAUSE-EFFECT CHAIN

33-

Expansionary Monetary PolicyProblem: Unemployment and RecessionFed buys bonds, lowers reserve ratio, lowers the discount rate, or increases

Слайд 16Restrictive Monetary Policy
Problem: Inflation
Fed sells bonds, increases reserve ratio, increases

the discount rate, or decreases reserve auctions
Excess reserves decrease
Federal funds

rate rises

Money supply falls

Interest rate rises

Investment spending decreases

Aggregate demand decreases

Inflation declines


















CAUSE-EFFECT CHAIN

LO4

33-

Restrictive Monetary PolicyProblem: InflationFed sells bonds, increases reserve ratio, increases the discount rate, or decreases reserve auctionsExcess

Слайд 17Evaluation and Issues
Advantages over fiscal policy
Speed and flexibility
Isolation from political

pressure
Monetary policy is more subtle than fiscal policy

LO5
33-

Evaluation and IssuesAdvantages over fiscal policySpeed and flexibilityIsolation from political pressureMonetary policy is more subtle than fiscal

Слайд 18Problems and Complications
Lags
Recognition and operational
Cyclical asymmetry
Liquidity trap

LO5
33-

Problems and ComplicationsLagsRecognition and operationalCyclical asymmetryLiquidity trapLO533-
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