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AP Economics

AP Economics. Mr. Bernstein Module 31 : Money Policy and the Interest Rate March 12, 2014. AP Economics Mr. Bernstein. Monetary Policy and the Interest Rate Objectives - Understand each of the following :

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AP Economics

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  1. AP Economics Mr. Bernstein Module 31: Money Policy and the Interest Rate March 12, 2014

  2. AP EconomicsMr. Bernstein Monetary Policy and the Interest Rate • Objectives - Understand each of the following: • How the Federal Reserve implements monetary policy, moving the interest rate to affect aggregate output • Why monetary policy is the main tool for stabilizing the economy

  3. AP EconomicsMr. Bernstein Monetary Policy and the Interest Rate: Targeting the Fed Funds Rate • How Do Fed Open Markets Operations increase M2? • (Buying or Selling? What instruments?) • What is the effect of the operation on short-term interest rates in the Money Market?

  4. AP EconomicsMr. Bernstein Expansionary Monetary Policy • Fed buys securities • MS increases – money is dropped into the system • Rates decrease • How does this link to Real GDP?

  5. AP EconomicsMr. Bernstein Expansionary Monetary Policy & the Economy • Lower i leads to increase in Investment • AD increases

  6. AP EconomicsMr. Bernstein Contractionary Monetary Policy • Fed sells securities • MS decreases – pulls excess reserves out of system • Rates increase • How does this link to Real GDP?

  7. AP EconomicsMr. Bernstein Contractionary Monetary Policy & the Economy • Higher i leads to decrease in Investment • AD decreases

  8. AP EconomicsMr. Bernstein Monetary Policy in Practice • The Fed is balancing multiple objectives which may at times conflict • Price Stability • Full Employment

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