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Preview/Prep “Monetary Policy” Notes
Subject: Economics
Topic: Monetary Policy
EQs:
What is the role of the Federal Reserve in the US economy?
What makes an economic policy monetary?
What are the tools used to implement monetary policy?

2. I can describe monetary policy.
Learning Target:
I can describe monetary policy.
I will show I understand by taking notes, analyzing quotes, and participating in an inflation activity.

3. Let’s see what Mr. Clifford has to say about Monetary Policy

4. Remember…the Origins of Economic Policies???
Before the depression, the government rarely intervened in the economy.
laissez-faire economic policy
Government doesn’t intervene—let market problems resolve themselves because gov’t intervention could have unintended consequences.
Today - government officials use a combination of fiscal & monetary policy to keep the economy running smoothly.

5. The Federal Reserve The “Fed”—Established by Congress in 1913
Acts as the central bank of the United States

6. The Federal Reserve Has THREE jobs: Guide monetary policy
Regulate & supervise banking
Provide financial services to private banks, U.S. government & foreign governments

7. Janet Yellen
Federal Reserve Chairman
(of the Board of Governors)

8. Monetary Policy
Monetarism— the use of monetary policy to expand and contract the money supply in an economy.
Monetary policy uses the Federal Reserve’s power to regulate:
- the money supply
- interest rates

9. Economist Associated with Monetary Policy
Economist Milton Friedman believed controlling the money supply was key to stabilizing the economy.
Friedman said “FREE THE MONEY” to keep the economy stable.

10. Goals of Monetary Policy:
Fight inflation
Keep prices stable
Economic stability
Lower unemployment

11. Monitary Policy Tools
Open market trading – buying and selling of government bonds (like IOUs)
Buying bonds puts more money
into the economy
Selling bonds puts more money

12. Monitary Policy Tools Interest rates
The Fed sets the rate that private banks pay to borrow money from them
This sets the rate private banks charge borrowers/savers

13. Monitary Policy Tools Reserve requirements
How much cash banks have to keep “on reserve” in their regional Federal Reserve Bank (Richmond Fed, etc.)

14. Types of MONETARY policy
EASY-MONEY monetary policy To fight recession and help the economy grow, the Fed will:
increases the money supply
decreases interest rates

15. Easy-Money Example: In 2001-2003 the Fed lowered interest rates from 6
Easy-Money Example: In the Fed lowered interest rates from 6.5%-1% to respond Dot-com bubble burst & 9/11 attacks

16. Types of MONETARY policy
TIGHT-MONEY monetary policy
When economy is growing too fast, to fight inflation, the Fed will:
decreases the money supply
increases interest rates

18. Tight-Money Example FOMC raised rates
Tight-Money Example FOMC raised rates .25% in March 2017 to prevent inflation as the economy is now in recovery from the Great Recession
FOMC Statement    
March 15, 2017
The Federal Open Market Committee decided to raise the target range for the federal funds rate to 0.75 to 1.00 percent.

19. Crash Course in Economics— Fiscal and Monetary Supply
Video Clip
Crash Course in Economics— Fiscal and Monetary Supply