MONETARY POLICY AND THE DEBATE ABOUT MONETARY POLICY Part one.

Slides:



Advertisements
Similar presentations
Federal Reserve. What is the Federal Reserve $Central Bank of the United States $Created by Congress with the passage of the Federal Reserve Act in 1913.
Advertisements

Economics Chapter Fourteen.
The Federal Reserve System
1 Money, Banking, the Federal Reserve System, and Monetary Policy Chapter 13 & 14.
Part 2 Who does it? How they do it?
Chapter 14: Central Bank Form and Function
Federal Reserve System
Maclachlan, Macroeconomics Fall Principles & Policies I: Macroeconomics Chapter 12: Monetary Policy and the Debate about Macro Policy.
Lectures in Macroeconomics- Charles W. Upton The Federal Reserve System FOMC.
Monetary Policy in America. Field Trip Facts Date of the trip:Monday, November 22, 2010 Transportation:District Bus to Fort Washington Train Station The.
Monetary Policy Unit 2.5. What is money?  Money is any object or record that is widely accepted as payment for goods and services.  3 Functions:  Money.
©2009, The McGraw-Hill Companies, All Rights Reserved 4-1 McGraw-Hill/Irwin Chapter Four The Federal Reserve System, Monetary Policy, and Interest Rates.
The Federal Reserve Started in 1913 is response to yet another financial crisis Is Quasi-public Serves three purposes Regulates the payment system Supervises.
The Federal Reserve System
Monetary Policy.
Copyright © 2004 South-Western 6 The Federal Reserve.
Chapter 13 Part One What is it?
Monetary Policy and you: You can do this! AP PHS March 5, 2011.
Lijphart, C12 & C13 Constitutions and Central Banks.
The Federal Reserve System
Paul Schneiderman, Ph.D., Professor of Finance & Economics, Southern New Hampshire University ©2008 South-Western.
The Monetary System. The Meaning of Money Money is the set of assets in the economy that people regularly use to buy goods and services from other people.
1 The Federal Reserve and Monetary Policy SECTION 1: The Federal Reserve System SECTION 2: The Federal Reserve at Work SECTION 3: Monetary Policy Strategies.
The Federal Reserve The Banker’s Bank. Purpose of the Fed  Central bank – a type of bankers’ bank.  A central bank conducts monetary policy and acts.
Business Cycle: The Role of Government
1 Chapter 5 The Overseer: The Federal Reserve System © 2000 South-Western College Publishing.
16 The Monetary System. THE MEANING OF MONEY Money is the set of assets in an economy that people regularly use to buy goods and services from other people.
Jump to first page Copyright 2003 South-Western Thomson Learning. All rights reserved. The Three Tools the Fed Uses to Control the Money Supply.
Overview of the Federal Reserve and Monetary Policy.
Federal Reserve System. The Role of the Federal Reserve Provides financial services to the government Regulates financial institutions Maintains the payment.
Mr. Nunn The Federal Reserve System. Federal Reserve System The Federal Reserve System or the Fed- is the central bank of the United States.
The Federal Reserve In Action. What is the Fed?  Central bank of the United States  Established in 1913  Purpose is to ensure a stable economy for.
Federal Reserve System 14.1 Federal Reserve acts as the central bank for the U.S. Look at a $1 bill After the panic of 1907 and the collapse of many banks,
Chapter 14 The Federal Reserve System Functions and Tools.
The Federal Reserve System. Powers of a Central Bank  Acts as a banker to the central government  Acts as a banker to banks  Acts as a regulator of.
Monetary Policy Federal Reserve & Monetary Policy.
Bellwork  On a piece of paper, make two columns, M1 and M2. Classify each of the following into the categories: Small time deposits Coins Certificates.
Introduction: Thinking Like an Economist CHAPTER 13 There have been three great inventions since the beginning of time: fire, the wheel and central banking.
Standard 2 Understand the fundamental concepts relevant to the institutions, structure, and functions of a national economy SS.912.E.2.10 Describe the.
SESSION 11: THE ROLE OF THE FEDERAL RESERVE SYSTEMS AND MONETARY POLICY Talking Points The Federal Reserve System (the Fed) 1. The Federal Reserve System.
The Federal Reserve In Action. What is the Fed?  Central bank of the United States  Established in 1913  Purpose is to ensure a stable economy for.
The Federal Reserve In Action. What is the Fed?  Central bank of the United States  Established in 1913 (Federal Reserve Act of 1913)  Purpose is to.
In This Lecture…..  The Federal Reserve System  Controlling the Money Supply  Open Market Operations  The Required Reserve Ratio  The Discount Rate.
Chapter 16 Section 1 and 2.  The Fed in American History ◦ Monetary Policy  The actions the Fed takes to influence real GDP and rate of inflation ◦
1 Monetary Policy How Monetary Policy Works in the Models Price level Real output AD 0 P0P0 AD 1 P1P1 Y0Y0 Y1Y1 SAS Monetary policy affects both.
Monetary Policy. Purpose The actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy.
Macro Review Day 3. The Multiplier Model 28 The Multiplier Equation Multiplier equation is an equation that tells us that income equals the multiplier.
29 The Monetary System. THE MEANING OF MONEY Money is the set of _______ in an economy that people regularly use to ______ goods and services from other.
The Federal Reserve. Federal Reserve Act of 1913  Created 12 regional independent banks.
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 4-1 Chapter Four The Federal Reserve System, Monetary Policy,
Monetary Policy. What is Monetary Policy? The actions of a central bank, currency board, or other regulatory committee, that determine the size and rate.
Chapter 28 MONETARY POLICY.
Fig. 1 The Geography of the Federal Reserve System
I. THE FEDERAL RESERVE SYSTEM
Monetary Policy and the Debate about Macro Policy
The Federal Reserve and Monetary Policy
8 The Fed & Monetary Policy
MONETARY POLICY AND THE DEBATE ABOUT MONETARY POLICY
The Federal Reserve and Monetary Policy
The Federal Reserve and Monetary Policy
The Federal Reserve Purposes and Functions
Economic Systems in the United States
Monetary Policy.
The Federal Reserve System
Why the Federal Reserve?
Questions… Who is in charge of our money? What/Who is the Federal Reserve? How does new money get put into the economy?
The Federal Reserve System
THE FEDERAL RESERVE AND MONETARY POLICY
The Federal Reserve and Monetary Policy
The Fed The Fed is responsible for all U.S. monetary policy. - They change the rate of growth of the supply of money in circulation in order to affect.
Presentation transcript:

MONETARY POLICY AND THE DEBATE ABOUT MONETARY POLICY Part one

Laugher Curve A caveman points to two of his hairy relatives carrying clubs over their shoulders and says: “OK—you hunt, you gather, and I’ll fine tune the economy.”

Monetary Policy Real output Price Level Y2Y2 P0P0 P2P2 P1P1 Y0Y0 Y1Y1 Expan- sionary Contrac- tionary AD 0 AD 1 SAS AD 2

Effect of Monetary Policy on the Macro Policy Model Expansionary monetary policy shifts the AD curve to the right. Contractionary monetary policy shifts the AD curve to the left.

Effect of Monetary Policy on the Macro Policy Model Expansionary monetary policy increases nominal income. Its effect on real income depends on how the price level responds. %  Real Income = %  Nominal Income – %  Price Level

Monetary Policy and the AS/AD Model Monetary policy, controlled by the Fed, influences the economy through changes in the money supply and credit availability. Expansionary monetary policy shifts the AD curve to the right. Contractionary monetary policy shifts the AD curve to the left.

Expansionary Policy Beyond Potential Output Real output Price Level YPYP LAS B A P0P0 P1P1 SAS 1 SAS 0 AD 1 AD 0

Central Banks A central bank conducts monetary policy and acts as a financial adviser to the government. Central bank – a type of bankers’ bank. The central bank’s ability to create money gives it the power to control the money supply.

Structure of the Fed Chief policymaking body of the Federal Reserve System Open market operations Provides services Financial institutions Federal government Board of Governors of the Federal Reserve System 7 members appointed by the president and confirmed Chairman and vice chairman designated by the president and confirmed by the Senate Regional Reserve Banks and Branches 12 regional Federal Reserve banks 25 branches of Federal Reserve banks Oversees Federal Open Market Committee 7 members of the Board of Governors 5 Federal Reserve bank presidents

Structure of the Fed The Fed is a semiautonomous organization composed of 12 regional banks. The Fed has much more independence than most government agencies. The Fed does not rely on Congress for appropriations. Its governors serve 14 year terms and cannot be reappointed.

Federal Reserve Districts San Francisco Kansas City Minneapolis Chicago. Boston Richmond Atlanta St. Louis *Alaska and Hawaii are under the jurisdiction of the Federal Reserve Bank of San Francisco Dallas New York PhiladelphiaCleveland Washington DC

Duties of the Fed Conducts monetary policy Supervises and regulates financial institutions Lender of last resort to financial institutions Provides banking services to the U.S. government Issues coin and currency Provides financial services such as check clearing to commercial banks, savings and loan associations, savings banks, and credit unions.

The Importance of Monetary Policy The Federal Open Market Committee (FOMC) makes actual monetary policy decisions. The FOMC is composed of: The 7 members of the Board of Governors The president of the New York Fed A rotating group of 4 of the presidents of the other regional banks

The Conduct of Monetary Policy The Fed influences the amount of money in the economy by controlling the monetary base. Monetary base – vault cash, deposits of the Fed, and currency in circulation. Reserves – vault cash or deposits at the Fed Monetary policy affects the amount of reserves in the banking system. Reserves and interest rates are inversely related.