Unit 3: Macroeconomic Policy

Lesson 16a: Monetary Policy

Key Problems

Article 1 - Fed Lowers Interest Rates Article 2 - Interest rates are going up again as the economy gets hotter Error: Around the 11 minute 19 sec point in the video I accidently said something like "the equilibrium level of RDO is below the full employment level of RDO". I should have said "the equilibrium level of RDO is beyond the full employment level of RDO".   Read the two short news articles below. Analyze the monetary policy being discussed in each. - What is the monetary policy TOOL that is being used? Circle the tool on the article. Explain. - Show the effects of this policy on a series of three graphs (the money market, investment demand, and AS/AD). - Discuss the effects of the policy on UE, IN, and EG.   Article 1 - Fed Lowers Interest Rates https://abcnews.go.com/Business/story?id=88461&page=1 By ABC News (March 20, 2001) Moving to keep an increasingly weak U.S. economic expansion from petering out, the Federal Reserve today slashed short-term interest rates by a half-point for the third time this year. With today's paring (reduction) of the federal funds rate by 50 basis points, to 5 percent, the Fed has now initiated the fastest series of interest rate cuts during Alan Greenspan's 14-year reign as the central bank's chairman.   Article 2 - Interest rates are going up again as the economy gets hotter (June 13, 2018) https://money.cnn.com/2018/06/13/news/economy/federal-reserve-june-rate-hike/index.html The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year. . . . . The decision reflected an economy that's getting even stronger. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy from overheating. . . . . The Fed lifted the federal funds rate. . . .

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