Lectures in Macroeconomics- Charles W. Upton Open Market Operations MBMB.

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Presentation transcript:

Lectures in Macroeconomics- Charles W. Upton Open Market Operations MBMB

The Three Policy Instruments Open Market Operations Reserve Requirements Discount Window

Open Market Operations An Open Market Operation The Fed wants to increase the money supply

Open Market Operations An Open Market Operation The Fed wants to increase the money supply It goes into the open market and purchases (say) a $1,000 government bond, and pays for it with freshly printed money.

Open Market Operations An Open Market Operation The Fed wants to decrease the money supply

Open Market Operations An Open Market Operation The Fed wants to decrease the money supply It goes into the open market and sells (say) a $1,000 government bond, takes a check in payment..

Open Market Operations An Open Market Operation Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100

Open Market Operations An Open Market Operation Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100

Open Market Operations An Open Market Operation Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100

Open Market Operations An Open Market Operation Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100

Open Market Operations An Open Market Operation Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100 M B = $1,000

Open Market Operations The Government Buys a Bond Key BankFed AL Deposit at Fed: $1,000 AL Deposit by Key Bank: $1,000 A Sam L Govt Bond: $100 Key Deposit: $100

Open Market Operations The Government Buys a Bond Key BankFed AL Deposit at Fed: $1,000 $1,100 AL Deposit by Key Bank: $1,000 $1,100 A Sam L Govt Bond: $100 Key Deposit: $100 Fred: $100

Open Market Operations The Government Buys a Bond Key BankFed AL Deposit at Fed: $1,000 $1,100 AL Deposit by Key Bank: $1,000 $1,100 A Sam L Govt Bond: $100 Key Deposit: $100 Fred: $100 M B = $1,100

Open Market Operations End ©2005 Charles W. Upton. All rights reserved

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