Macro 14
•
0 likes•137 views
This document discusses macroeconomics topics including central banks, monetary policy tools, and the aggregate demand-aggregate supply model. It provides information about an upcoming exam, chapters to be covered, the Federal Reserve and its chairman, and concepts like the money supply, reserve ratio, fractional reserve banking, and the money multiplier. It also explains how monetary policy tools like open market operations, the discount rate, and excess reserves can be used to increase or decrease the money supply and thereby shift aggregate demand curves to address inflation or recession in the short and long run.
More Related Content
What's hot
What's hot (19)
Similar to Macro 14
Similar to Macro 14 (20)
More from Gale Pooley
More from Gale Pooley (20)
Recently uploaded
Recently uploaded (20)
Macro 14
- 3. Exam 2 Thursday June 6 Testing Center Chapters 10-16
- 6. Chapter 15 Central Banks Money Supplies Fractional Reserve Banking Reserve Ratio - Money Multiplier Monetary Tools Systemic Risks Control AD-AS Model
- 8. Who is the chairman of the central bank in your country?
- 9. AD Real GDP Growth Rate Inflation Rate π LRAS SRAS Recession Inflation
- 10. Negative Positive Shift Left Shift Right Aggregate Supply Curve Bad weather Good weather Higher oil price Lower Oil Price Tech slump Tech boom Higher business taxes or regulations Lower business taxes or regulation War, Earthquake, Pandemic Smooth production Aggregate Demand Curve Slower Money Supply Growth Faster money Supply Growth Fear Confidence Reduced Wealth Increased Wealth Higher Personal Taxes Lower Personal Taxes Lower Government Spending Higher Government Spending Decreased Export Growth Increased Export Growth Increased Import Growth Decreased Import Growth
- 11. Negative Positive Shift Left Shift Right Aggregate Supply Curve Bad weather Good weather Higher oil price Lower Oil Price Tech slump Tech boom Higher business taxes or regulations Lower business taxes or regulation War, Earthquake, Pandemic Smooth production Aggregate Demand Curve Slower Money Supply Growth Faster money Supply Growth Fear Confidence Reduced Wealth Increased Wealth Higher Personal Taxes Lower Personal Taxes Lower Government Spending Higher Government Spending Decreased Export Growth Increased Export Growth Increased Import Growth Decreased Import Growth
- 12. Federal Reserve Bank - FED Money Supply U.S. Treasury Banks Payment System
- 15. AD Real GDP Growth Rate Inflation Rate π LRAS SRAS Recession Inflation
- 16. Reserve Ratio Fractional Reserve Banking Money Multiplier
- 17. Reserve Ratio Fraction of deposits that must be held in reserve
- 18. Money Multiplies as it is spent and re-spent and re- spent again and again… RR = 1÷ MM Money Multiplier
- 19. Reserve Ratio RR = 1÷ MM Money Multiplier MM = 1÷ RR
- 20. Reserve Ratio Money Multipler 100% 1 50% 2 20% 5 10% 10 5% 20 1% 100
- 21. Discount Rate Rate the FED charges member banks
- 22. Discount Rate Currently 2.75% Average 4.45% (1950 - 2017)
- 23. Discount Rate
- 24. Discount Rate Influences other rates
- 25. 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
- 26. Pattern?
- 27. Open Market Operations Buying and Selling Financial Instruments
- 29. Banks now have more cash to loan Central Bank Public Banks Increase Money Supply? Buy bonds for cash
- 30. Banks now have less cash to loan Central Bank Public Banks Decrease Money Supply? Sell bonds for cash
- 31. What do banks do with extra money? Excess Reserves The FED will pay them interest
- 32. Excess Reserves Interest If the rate is high enough you will leave it in the bank. Sets a floor
- 33. Quantity of Reserves FED Reserve Interest Rate % Supply FED Rate 5% 7% 3% 10 155
- 34. 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
- 36. Quantitive Easing Buying lots of other financial instruments. Lots of illiquid assets
- 37. Lender of Last Resort Bailouts
- 38. Problem Recession Shift AD to Right Inflation 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
- 39. Central Banks Independent Political Pressure Accountable Who do they answer to?
- 40. The graph below shows the US economy in long run equilibrium with a spending growth of 13 percent, a 9 percent inflation rate, and a 4 percent real GDP growth. Step 1: Suppose that to reduce inflation the Fed permanently decreased money supply growth by 5 percent. Using the copy tool, show the short run effect this would have by shifting and labeling the appropriate curve(s). Plot the new short run equilibrium using the double drop line tool and label it Equilibrium 2. Step 2: Show how the economy will adjust in the long run by shifting and labeling the appropriate curve(s). Plot the new long run equilibrium and label it Equilibrium 3. Total Spending Rate = Inflation Rate + Real GDP Growth Rate 13% = 9% + 4% 8% = 4% + 4%
- 41. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Real GDP Growth Rate Inflation Rate Total Spending = Inflation Rate + Real GDP Growth Rate 13% = 9% + 4% Reduce Money Growth Rate by 5% Reduces Inflation Rate from 9% to 4% 8% = 4% + 4% Short Run 8% = 7% + 1% T.S. = 13% T.S. = 8% Long Run 8% = 4% + 4% RecessionGrowth
- 42. Because prices are sticky going down, you cannot reduce inflation without having a temporary recession As the price level falls, spending increases back to capacity