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Transcript
Monetary Policy I. The Federal Reserve System – The Board of Governors – Advisory Councils • Federal Advisory Council • Consumer Advisory Council • Thrift Institutions Advisory Council – The Federal Open Market Committee – The Federal Reserve Banks – Member Banks II. Monetary Policy Instruments A. General Control Instruments • • • • Open Market Operations Discount Policy Change in Reserve Requirements Moral Suasion B. Selective Control Instruments III. Monetary Theory A. Classical Theory Say’s law. B. Keynesian Theory It advocates an active role for the federal government in correcting economic proboems. • Stimulative monetary policy Money supply Interest rates Aggregate spending • Restrictive monetary policy Money supply Inflation Interest rates C. Monetarist Approach • Quantity Theory MV = PGQ, where M = money supply, V = velocity of money, PG = weighted average price level, and Q = quantity of goods and services sold. Q and V are assumed to be constant. P if M . • Modern Quantity Theory Q is not assumed to be constant. M Q . V changes in a predictable manner and is not related to fluctuations in M. D. Rational Expectations Theory Changes in monetary policy are unlikely to have any sustained positive impact on the economy. IV. Policy Tradeoff Phillips Curve Inflation Unemployment