How does The Fed Use Money to Stabilize Economies?<br />Monetary Policy      Money, Measures, Time Value, Creation<br />
What is SCRILLA? (Money)<br />Medium of Exchange<br />Can trade with it <br />Unit of Account (Value)<br />Shows worth<br ...
3 types of $ are included in the Money Supply, the FED Controls M1 and M2<br />MONEY SUPPLY<br />
Types of Cash Stacks: M1 <br />M1<br />Currencies and Coins<br />Demand Deposits <br /> Traveler’s Checks and Checking Ac...
TYPES OF CASH STACKS: M2<br />M2<br />STORE OF VALUE<br />Less Liquid…<br />(slower to convert to cash)<br />M1 +<br />Sav...
TYPES OF CASH STACKS: m3<br />M3<br />The least liquid<br />M2 +…<br />Large Time Deposits (over $100,000)<br />
TIME VALUE OF MONEY<br />Value falls with INFLATION<br />Interest Rates equate dollars today with dollars in the FUTURE<br />
HOW DOES THE FED USE THE MONEY SUPPLY TO PREDICT GDP?<br />MV = PQ<br />PQ = Nominal GDP<br />M = Money Supply (M1 or M2)<...
The Money Market<br />						R = Nominal <br />					             Interest Rate<br />R<br />MS<br />R <br />MD<br />QM<br />...
CREATE THE NEW CURRENCY DESIGN FOR A DEVELOPING COUNTRY THAT INCLUDES:<br />
THE FED: Central Bank<br />HOW CAN THE FED USE THE MONEY SUPPLY TO ACHIEVE FULL EMPLOYMENT AND PRICE STABILITY?<br />
Tools Of Monetary Policy<br />% of $ that must be stored <br />Determines the multiplier<br />(1/required reserves)<br />U...
Tools of Monetary Policy<br />Interest Rate banks pay each other for loans<br />Buy Bonds: <br />“Bigger Bucks”<br />Incre...
Types of Monetary Policy<br />Contractionary<br />“Tight Money”<br />Expansionary<br />“Easy Money”<br />
Increase MS ($$)<br />Expansionary Monetary Policy<br />R<br />MS<br />MS1<br /><br />R <br /><br /><br />R1<br />MD<br...
DECREASE MS (-$$)<br />Contractionary Monetary Policy<br />R<br />MS<br />MS1<br /><br />R1<br /><br /><br />R<br />MD<...
Expansionary<br />Fed buys bonds, lowers Federal Funds, Reserve Requirements, Discount Rate  “Bigger” Bucks<br />Increase...
EXPANSIONARY<br />MS<br />MS1<br />R<br />R<br /><br />R<br />R<br /><br /><br /><br /> i1<br />i1<br />ID<br />MD<br ...
Contractionary<br />Fed sells bonds, raises Federal Funds, Reserve Requirements, and Discount Rate  “Smaller” Bucks<br />...
Currency: BACK<br />
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How does the FED stabilize economies?

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Money, Monetary Policy

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How does the FED stabilize economies?

  1. 1. How does The Fed Use Money to Stabilize Economies?<br />Monetary Policy Money, Measures, Time Value, Creation<br />
  2. 2. What is SCRILLA? (Money)<br />Medium of Exchange<br />Can trade with it <br />Unit of Account (Value)<br />Shows worth<br />Store of Value<br />Maintains value<br />
  3. 3. 3 types of $ are included in the Money Supply, the FED Controls M1 and M2<br />MONEY SUPPLY<br />
  4. 4. Types of Cash Stacks: M1 <br />M1<br />Currencies and Coins<br />Demand Deposits <br /> Traveler’s Checks and Checking Accounts<br />
  5. 5. TYPES OF CASH STACKS: M2<br />M2<br />STORE OF VALUE<br />Less Liquid…<br />(slower to convert to cash)<br />M1 +<br />Savings Deposits<br />Time deposits<br />Money Market Deposits<br />Mutual Funds<br />
  6. 6. TYPES OF CASH STACKS: m3<br />M3<br />The least liquid<br />M2 +…<br />Large Time Deposits (over $100,000)<br />
  7. 7. TIME VALUE OF MONEY<br />Value falls with INFLATION<br />Interest Rates equate dollars today with dollars in the FUTURE<br />
  8. 8. HOW DOES THE FED USE THE MONEY SUPPLY TO PREDICT GDP?<br />MV = PQ<br />PQ = Nominal GDP<br />M = Money Supply (M1 or M2)<br />V = Money’s Velocity (# of times Dollars is Spent)<br />P = PL (AS/AD)<br />Q = Real GDP<br />MONETARY EQUATION OF EXCHANGE<br />
  9. 9. The Money Market<br /> R = Nominal <br /> Interest Rate<br />R<br />MS<br />R <br />MD<br />QM<br />Q<br />
  10. 10. CREATE THE NEW CURRENCY DESIGN FOR A DEVELOPING COUNTRY THAT INCLUDES:<br />
  11. 11.
  12. 12. THE FED: Central Bank<br />HOW CAN THE FED USE THE MONEY SUPPLY TO ACHIEVE FULL EMPLOYMENT AND PRICE STABILITY?<br />
  13. 13. Tools Of Monetary Policy<br />% of $ that must be stored <br />Determines the multiplier<br />(1/required reserves)<br />Usually 10% or .1<br />Interest banks pay the Fed for loans<br />Decrease = banks borrow more<br />Increase = banks borrow less<br />Reserve Ratio = RR<br />Discount Rate <br />
  14. 14. Tools of Monetary Policy<br />Interest Rate banks pay each other for loans<br />Buy Bonds: <br />“Bigger Bucks”<br />Increase MS<br />Sell Bonds: <br />“Smaller Bucks”<br />Decrease MS<br />Federal Funds Rate<br />Open Market Operations: Treasury Bonds **<br />** = most frequently used Tool<br />
  15. 15. Types of Monetary Policy<br />Contractionary<br />“Tight Money”<br />Expansionary<br />“Easy Money”<br />
  16. 16. Increase MS ($$)<br />Expansionary Monetary Policy<br />R<br />MS<br />MS1<br /><br />R <br /><br /><br />R1<br />MD<br />QM<br />Q<br />Q1<br />
  17. 17. DECREASE MS (-$$)<br />Contractionary Monetary Policy<br />R<br />MS<br />MS1<br /><br />R1<br /><br /><br />R<br />MD<br />QM<br />Q<br />Q1<br />
  18. 18. Expansionary<br />Fed buys bonds, lowers Federal Funds, Reserve Requirements, Discount Rate  “Bigger” Bucks<br />Increase MS<br />R↓<br />IG↑<br />↑ AD<br />
  19. 19. EXPANSIONARY<br />MS<br />MS1<br />R<br />R<br /><br />R<br />R<br /><br /><br /><br /> i1<br />i1<br />ID<br />MD<br /><br />QM<br />Q<br />Q1<br />IG<br />I<br />I1<br />LRAS<br />PL<br />SRAS<br /><br />P1<br /><br />P<br />AD1<br />AD<br /><br />GDPR<br />YF<br />Y<br />
  20. 20. Contractionary<br />Fed sells bonds, raises Federal Funds, Reserve Requirements, and Discount Rate  “Smaller” Bucks<br />Decrease MS<br />R ↑<br />IG ↓<br />↓ AD<br />
  21. 21. Currency: BACK<br />
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