Macro 13.pdf
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This document contains information about macroeconomics tools used by central banks. It discusses how the reserve ratio, discount rate, open market operations, and excess reserves rate can be used to either increase or decrease the money supply. Lowering the reserve ratio and discount rate or conducting open market purchases increases the money supply and shifts the aggregate demand curve to the right, which can help address unemployment. Raising these rates or selling bonds in open market operations decreases the money supply and shifts aggregate demand left, which can help address inflation.
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Macro 13.pdf
- 4. Quiz Master
- 8. 1979 2022 Change Percentage Change Price $399.99 $74.00 -$325.99 -81.5% Hourly Income $3.69 $14.50 $10.81 293.0% Time Price 108.40 5.10 -103.29 -95.3%
- 10. Microwave 2022: 108.4 hours 5.1 hours Time decreased by 95.3% 21.25 Microwave 1979:
- 11. Oven: Microwave: 28 minutes 1 minute 15 seconds Time decreased by 95.5% 22.4 for 1
- 12. Oven: Microwave: 28 cents 0.41 cents Energy decreased by 98.5% 68.3 to 1
- 13. Microwave -95.3% Heating Time -95.5% Electricity -98.5% Burrito-nomics
- 16. Reserve Ratio Fraction of deposits that must be held in reserve
- 17. Reserve Ratio RR = 1÷ MM Money Multiplier MM = 1÷ RR
- 18. Reserve Ratio Money Multipler 100% 1 50% 2 20% 5 10% 10 5% 20 1% 100
- 19. Discount Rate Rate the FED charges member banks
- 20. Discount Rate Currently 0.25% Average 4.45% (1950 - 2021)
- 22. 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time to Maturity Interest Rate FED Changes Discount Rate Other Rates Follow
- 23. Open Market Operations Buying and Selling Financial Instruments
- 25. Banks now have more cash to loan Central Bank Public Banks Increase Money Supply? Buy bonds for cash
- 26. Banks now have less cash to loan Central Bank Public Banks Decrease Money Supply? Sell bonds for cash
- 27. What do banks do with extra money? Excess Reserves The FED will pay them interest
- 28. Excess Reserves Interest If the rate is high enough you will leave it in the bank. Sets a fl oor
- 29. Problem Recession Shift AD to Right In fl ation Shift AD to Left Tools Increase Money Supply Decrease Money Supply Reserve Ratio Lower Raise Discount Rate Lower Raise Open Market Operations Buy Bonds from the Banks Sell Bonds to the Banks Excess Reserves Interest Rate Lower Raise
- 30. Disin fl ation Slower growth in in fl ation rate 8% to 3% De fl ation Negative in fl ation 8% to -3%
- 31. Illiquid No cash Net worth to pay debt, but can’t sell quick and without loss Insolvent No cash No net worth to pay debt
- 33. Quantitive Easing Buying lots of other fi nancial instruments. Lots of illiquid assets
- 36. Real GDP Growth Rate In fl ation Rate π AD1 LRAS SRAS AD2
- 38. Quiz 1.What are the four monetary tools? 2. How do you use the tools if the problem is in fl ation? 3. How do you use the tools if the problem is unemployment? 4. How do you use the tools if the problem is stag fl ation?
- 39. Problem Money Supply AD Shift Reserve Ratio Discount Rate Open Market Operations Excess Reserve Rate In fl ation Unemployment Stag fl ation Left Increase Increase Sell Bonds Increase Right Decrease Decrease Decrease Buy Bonds Increase Decrease
- 40. π Y Quiz ADAS Modeling In fl ation Output Curve Direction Level Level 1. Good Weather 2. Slower Money Growth Rate 3. Lower Business Taxes 4. Decrease in Exports 5. New innovation 6. Lower electricity prices 7. Higher Personal Taxes 8. Earthquake AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS
- 41. π Y Quiz ADAS Modeling In fl ation Output Curve Direction Level Level 1. Good Weather 2. Slower Money Growth Rate 3. Lower Business Taxes 4. Decrease in Exports 5. New innovation 6. Lower electricity prices 7. Higher Personal Taxes 8. Earthquake
- 42. AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS