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Finish Your Monetary Policy Drawings. (You’ve Got 15 Minutes) ALSO: Bu.L.L. Poster! ALSO: Partners!. After loaning the government $$$. You are left holding a bond. If it’s a 10 year bond, you’ll get paid interest each year. And receive the “purchase amount” back in 10 years. OR.
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Finish Your Monetary Policy Drawings (You’ve Got 15 Minutes) ALSO: Bu.L.L. Poster! ALSO: Partners!
After loaning the government $$$ • You are left holding a bond. • If it’s a 10 year bond, you’ll get paid interest each year. • And receive the “purchase amount” back in 10 years.
OR... • Maybe you don’t want to wait 10 years. • Something comes up, and you want your cash now! • In that case you could sell that bond to someone else.
How the Fed controls the money supply... (drum roll)
The Fed buys or sells bonds in the open market • The Fed can print money, and BUY bonds from the public. • This INCREASES the money supply. • Which makes interest rates go ___ • which makes people/businesses borrow MORE • AND spend MORE (C & I go up) • so AD increases, and Real GDP increases • and recession ends (yay!!)
Think of a dam… • A dam controls the flow of water downriver. • Releasing too much water would cause flooding. • Too little water would cause a drought.
The Fed is like a dam... • & the river is the $ supply. • Too much $ causes inflation. • Too little $ causes a recession. Federal Reserve Money Supply
So, to fight inflation, the Fed should... • Sell bonds. • Which will shrink the money supply, • and make dollars more valuable.
1. Population = 100Employed = 30Not employed but looking = 20What is the unemployment rate? • A) 10% • B) 20% • C) 30% • D) 40%
2. A gulfstream employee gets laid off because of the recession. What type of unemployment is this? • A) Structural • B) Cyclical • C) Frictional • D) Seasonal
3. You are fired from your job because your boss doesn’t like you. What kind of unemployment is this? • A) Structural • B) Cyclical • C) Frictional • D) Seasonal
4. A CD store goes out of business as more people buy music online. What kind of unemployment do the store employees have? • A) Structural • B) Cyclical • C) Frictional • D) Seasonal
5. When a period of steady work is followed by a period of unemployment each year. • A) Structural unemployment • B) Cyclical unemployment • C) Frictional unemployment • D) Seasonal unemployment
6. When the skills of workers don’t match the jobs available. • A) Structural unemployment • B) Cyclical unemployment • C) Frictional unemployment • D) Seasonal unemployment
7. When the Fed sells bonds, the money supply… • A) increases • B) shrinks
8. When the Fed sells bonds, interest rates… • A) rise • B) fall
9. The Fed is most likely to lower interest rates… • A) when we are in a recession. • B) when inflation is high.
10. The Fed is most likely to sell bonds… • A) when we are in a recession. • B) when inflation is high.
What are banks good for? • What services do banks provide?? • Banks: • hold our money • lend us money • process check and debit card transactions
The Federal Reserve or “Fed” • IS A “BANK FOR BANKS”. • The Fed • holds money for banks (and the government) • lends money to banks (and the government) • processes transactions between banks • monitors bank reserves • percent of deposits banks must hold • currently 10% of all deposits
The Fed’s Structure • Privately owned, publicly run. • Banks own it • they buy stock in it • The president appoints the Board of Governors • Governors serve staggered 14-year terms. • One of the governors is made “Chairman of the Fed”.
Strong-Like-Bull Rule • If Real GDP is in a lull, Bu.L.L. • (Buy bonds, Lower federal funds rate, Lower discount rate)
Federal Open Market Committee • (part of the Federal Reserve) • Controls MONETARY POLICY • interest rates • the money supply • the Fed prints our money • & controls it’s circulation
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