TOPICS
Tools of the
Fed
- OMO
- RR
- DR
The Monetary Policy Cause Effect
Chain
OUTCOMES
List the principal assets
and liabilities of the Federal Reserve Banks.
Explain how each of the three
tools of monetary policy may be used by the Fed to expand
and to contract the money supply.
Explain the relative importance of
the monetary policy tools. (OMO most
important)
Describe expansionary and
contractionary monetary policies, and explain when, why,
and how they are used.
Describe the relationship between
the interest rate, expected rate of return, and
investment and construct an investment demand
curve.
Identify the factors
(determinants) that may cause a shift in the
investment-demand curve.
Explain the cause-effect chain
between monetary policy and changes in equilibrium
GDP.
Demonstrate
graphically the money market and how a change in the
money supply will affect the interest
rate.
Show the effects of interest
rate changes on investment spending.
Describe the impact of changes
in investment on aggregate demand, equilibrium GDP,
and UE, IN, and EG.
Describe how the Fed targets the
Federal Funds Rate (Fed Funds) as part of its OMO
monetary policy actions.
Listen to the first
minute and ten seconds of the podcast below. Can you
GRAPH what is happening in China? (The first two
minutes are NOT about basketball in Cuba.)
http://www.marketplace.org/topics/economy/podcast-basketball-heads-cuba
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