Download Monetarist’s take on Fiscal Policy

Secondary Monetary Policy Tools
Jill Student
Jack Deskoccupier
Dan Intheclouds
Joanie Willgraduatesoon
Austrian Economics
May Term 2015
Professor Hal Snarr
Westminster College
Secondary Monetary Policy Tools
• What is the Federal Reserve system?
• What are the Fed’s four primary monetary policy tools?
• What is the FOMC?
• Who chairs the FOMC?
• How often does the FOMC meet?
• What are the primary objects of the FOMC?
Secondary Monetary Policy Tools
Changing the discount rate
–
The Fed raises the discount rate to 4%.
Federal Funds Market
iff
4
3
SR
2
DR
28
R
Secondary Monetary Policy Tools
Changing the discount rate
–
The Fed raises the discount rate to 4%.
Federal Funds Market
iff
4
SR
2
DR
28
R
Secondary Monetary Policy Tools
Changing the discount rate
–
–
The Fed raises the discount rate to 4%.
The equilibrium does not change when the Fed lowers the discount rate back to 3%.
Federal Funds Market
iff
3
SR
2
DR
28
R
Secondary Monetary Policy Tools
Changing the discount rate
– If only the discount rate is reduced or raised at most 5 basis points, how does this
affect:
•
•
•
•
•
•
Quantity of reserves
Federal funds rate
Other interest rates
Real GDP
Price level
Unemployment rate
Secondary Monetary Policy Tools
Changing the required reserve ratio
–
When the Fed raises rrr, demand for reserves shifts out
Federal Funds Market
iff
3
SR
2
DR
28
R
Secondary Monetary Policy Tools
Changing the required reserve ratio
–
When the Fed raises rrr, demand for reserves shifts out
Federal Funds Market
iff
3
SR
2
DR
28
R
Secondary Monetary Policy Tools
Changing the required reserve ratio
–
–
When the Fed raises rrr, demand for reserves shifts out
iff rises to id
Federal Funds Market
iff
3
SR
DR
28
R
Secondary Monetary Policy Tools
Changing the required reserve ratio
–
–
When the Fed raises rrr, demand for reserves shifts out
iff rises to id provided the Fed adds $5b to reserves by issuing $5b in discount loans.
Federal Funds Market
iff
3
SR
DR
28
32
R
Secondary Monetary Policy Tools
Changing the required reserve ratio
–
–
–
When the Fed raises rrr, demand for reserves shifts out
iff rises to id provided the Fed adds $5b to reserves by issuing $5b in discount loans.
The equilibrium quantity of reserves increases to $32b.
Federal Funds Market
iff
3
SR
DR
28
32
R
Secondary Monetary Policy Tools
Changing the required reserve ratio
– If only required reserves ratio is raised, how will this affect:
•
•
•
•
•
•
•
Quantity of reserves
Federal funds rate
Overall bank lending
Money Supply and nominal rate of interest
Real GDP
Price level
Unemployment rate