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Different types of financial assets Fiscal Policy Federal Reserve Board (Board of Money Supply
Governors) (cont)
Money Stocks Bonds Government Income Taxes What does the money
something shares in a Spending -created by the Federal Reserve Act of 1913 supply mean?
used to the certificate Increase in gov. Tax reductions The Federal Open Market Committee aids The money supply is
facilitate ownership of debt spending leads lead to more the Board of Governors in conducting the money in the
the of a issued by a to more income consumption. Monetary Policy . economy at M1.
exchange business business or = more buying and selling bonds
In a money market graph,
of goods a consumption
why is the Money Supply
and government
More Firms can AD + AS Graph curve vertical?
services
consumption produce more,
Money supply is
money is open leads to more which leads to
independent of interest
measured market investments by greater
rates because it is
in liquidity. operations firms. investments.
determined by
M1 is the
- examples above are monetary policy
highest
expansionary fiscal policy actions of the Fed
liquidity
- the opposite (raise taxes + lower
(coins, What are the shifters of
gov spending) is contractionary
cash, cd) money supply?
fiscal policy
fiat money: something that serves as 1. setting reserve
- these things shift aggregate
money but has no other important requirements, 2.
demand
uses setting federal funds
rate, 3. setting
Federal Reserve Board (Board
discount rates, 4. open
Monetary Policy of Governors)
P0 shows the market in equilibrium. P2 market operations
1. Change the required reserve ratio - -#1 there are shows a shift in AD, creating a
2. Change the discount rate independe Goal: 7 board recessionary gap. How do banks create
3. Change the federal funds rate nt control members money?
4. Open-market purchase of regulatory the who all Shifters of AD + AS
government bonds by the central agency money serve 14 After banks receive
bank Aggregate Aggregate Supply deposits from their
supply year
terms Demand customers, they put away
Quantity Theory of MV =
Money PQ