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United States Federal Reserve

United States Federal Reserve. What are the factors that would influence the Federal Reserve in adjusting the discount rate?. Weak Economy. Low Employment Levels. High Price Fluctuations. Low Economy Production Capacity. High Federal Funds Rates. .

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United States Federal Reserve

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  1. United States Federal Reserve

  2. What are the factors that would influence the Federal Reserve in adjusting the discount rate? • Weak Economy. • Low Employment Levels. • High Price Fluctuations. • Low Economy Production Capacity. • High Federal Funds Rates.

  3. How does the discount rate affect the decisions of banks in setting their specific interest rates? • Lower Discount Rates: • Banks borrow more reserves • Increase in loan offers. • Lower interest rates . • Increased Discount Rates: • Bank reserve decrease. • Fewer loan offers. • Higher interest rates.

  4. How does monetary policy aim to avoid inflation? • Contractionary monetary policy: • Selling of U.S. Treasury Securities-Open Market Operations. • Increase in the Discount Rate. • Increase in Reserve Requirements. • Control Money Creation. • Decrease in Government Spending. • Increased Taxes.

  5. FEDERAL RESERVE CONTROLLING MONEY SUPPLY

  6. How does monetary policy control the money supply? • With more money, aggregate expenditures are greater. • Low interest rates: • Investment • expenditures. • Government purchases. • Net exports. • Consumption expenditures.

  7. How does monetary policy control the money supply? • With less money, aggregate expenditures are lower. • High interest rates: • Investment expenditures decrease . • Government spending decreases. • Net exports. • Consumption expendituresdecrease

  8. How does a stimulus program (through the money multiplier) affect the money supply? • Potential Economic Stimulus: 1. Tax cuts for individuals. 2.Tax cuts for businesses. 3. Expenditures on public works. 4. Investments in research and development.

  9. Currently, what indictors are evident that there is too much or too little money within the economy? How is monetary policy aiming to adjust this? • Too Much Money . Too Little Money 1. Consumer Spending 1. Decline in purchasing Rises. Power. 2. Higher Demand for 2. Low Demand for Products products. 3. Supply of products 3. Lower Prices decrease. 4. Prices rise too quickly

  10. References • Obringer, L.A,. (2002)."How the Fed Works“. Retrieved from HowStuffWorks.com. <http://money.howstuffworks.com/fed.htm>  293 September 22, 2012. • Schwartz, A.J. "Money Supply." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved September 22, 2012 from the World Wide Web: http://www.econlib.org/library/Enc/MoneySupply.html

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