Macro11C Essay Example | Topics and Well Written Essays - 1250 words

Macro11C - Essay ExampleThe high the RR, the lower the amount of money lent by banks and vice versa. 3) Federal funds run (FFR) The FFR refers to the pass judgment at which banks lend each other money overnight in order to maintain the mode regularize requirement. If the FFR is high, banks would be unwilling to lend beyond the reserve requirement and vice versa. 4) Discount rate (DR) The DR refers to the rate that the federal reserve charges the bank if it wants to borrow money from it in case when the money is not visible(prenominal) to be borrowed from other banks. The DR is usually higher than the FFR. The open market operations ar the most astray occasiond tool for controlling the money supply in the market. The decisions for these open market operations are made during the Federal Open Market Committee meetings which since 1981 have been held 8 times at regularly scheduled times each year. These open market operations change the money supply without allude the money mu ltiplier. The most powerful tool that the Fed has to control the monetary polity is the Reserve Requirement. ever-changing the RR not only impacts the money supply but also the money multiplier as it this instant influences the bank lending. ... Easy money polity To fight recessions, the Fed sack up use its monetary policy tools to increase the growth of money and credit, which tends to lower interest rates and spur growth of the economy. This monetary policy is said to be easy or expansionary. Tight money policy To restrain inflation, the Fed can use its monetary policy tools to reduce the growth of money and credit, which tends to raise interest rates and let up the growth of the economy. This monetary policy is said to be tight or contractionary. For the easy money policy, beginning gear the MS increases which causes the interest rate to decrease which causes the amount of investment to increase. This causes AD to increase leading to a higher real GDP and a little inflation . The implementation in earthly concern is done by the Fed by buying securities from banks and/or reducing the reserve ratio for banks, the FFR and the DR. For the tight monetary policy, first the MS decreases which causes the interest rate to increase which causes the amount of investment to decrease. This causes AD to decrease leading to a lower real GDP and a decrease in price levels. The implementation in reality is done by the Fed by selling securities from banks and/or increasing the reserve ratio for banks, the FFR and the DR. Q3 gossipmonger on the theory primal the use of a monetary rule by the Federal Reserve. Does the use of such a rule seem appropriate under current economic conditions? Explain. The theory underlying the ue of monetary policy by the Federal Reserve is also known as the Taylor Rule. It is an interest rate forecasting model invented by John Taylor in 1992 and described in his 1993 study called Discretion Vs. indemnity Rules in Practice. In general, the Taylor rule mean that for a 1% increase in