1. Project Review
1.1. Summary of Project
1.2. Timeline:
1.3. Budget:
1.4. Resources:
2. Definition
2.1. A central bank's actions and communiations that manage the money supply.
3. The central bank's control over the supply of money
3.1. Expansionary MP
3.1.1. MP is expansionary when the central bank reduces RR or DR or buys goverment bonds
3.1.2. shuold be expansionary when the economic growth rate is low or unemployment rate is high
3.2. Restrictive Mp
3.2.1. MP is retrictive when the central bank increase RR or DR or sells goverment bonds
3.2.2. MP should be restrictive whe the economy is overheating or inflation rate is high.
4. 3 Ofjectives of MP
4.1. to promote moderate long-term interest rates
4.2. to reduce unemployment, but only after controlling inflation
4.3. to manage inflation
5. Main tools
5.1. Reserve requirement
5.1.1. Definition: RR are the certain percentage of deposits by required by central Bank.
5.1.2. Change: reserve requirements increase or decreaese the money supply.
5.2. Discount rate
5.2.1. Interest rate on loans offered by fed to other banks
5.2.2. Increase in the discount rate or decrease makes it less expensive contract the money supply
5.3. Open market operations
5.3.1. The Fed's buying and selling govenment securities.
5.3.2. expand the sells buy Treasury bonds -->increase the money supply
5.3.3. Contract reducing banking system reserves--> decrease the money supply