Chapter 11 Money and the Economy

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Presentation transcript:

Chapter 11 Money and the Economy

Money Supply and Prices Inflation Deflation Money Supply $ in circulation Increase = inflation Decrease= deflation Controlled by Federal Reserve Bank

Money Supply and Inflation

Federal Reserve Bank Created in 1913 to oversee banking Controls monetary policy Money supply Interest rates Reserve requirements Chairman Ben Bernanke

Open Market Operations Buying/Selling of Securities Buys: Increases Money Supply Cash in hands of consumers Sells: Decreases Money Supply Cash in hands of govt. Affects value of dollar

Monetary Policy Federal Reserve Actions Designed to stabilize the economy Sometimes makes it worse Lag time 2-4 Quarters Ex. Creation of Housing Bubble Interest rates too low

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