ECON 102 1st Edition Lecture 29 Outline of Last Lecture I Types of Money a Types of Measuring Money II Monetary Role of Banks Outline of Current Lecture I The Federal Reserve System II Open Market Operations III Demand for Money a Money Demand Curve Current Lecture The monetary base is the sum of currency in circulation and bank reserves The money multiplier is the ratio of the money supply to the monetary base The Federal Reserve System in the US A central bank is an institution that oversees and regulates the banking system and controls the monetary base The Federal Reserve is a central bank an institution that oversees and regulates the banking system and controls the monetary base The Federal Reserve System consists of the Board of Governors in Washington DC plus 12 regional Federal Reserve Banks These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute The federal funds market allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves The federal funds rate is the interest rate determined in the federal funds market The discount rate market is the rate of interest the Fed charges on loans to banks Open Market Operations Open market operations by the fed are the principal tool of monetary policy the Fed can increase or reduce the monetary base by buying government debt from banks or selling government debt to banks o Monetary System is supposed to be separate from the government Demand for Money Short term interest rates are the interest rates on financial assets that mature within six months or less Long term interest rates are interest rates on financial assets that mature a number of years in the future Money Demand Curve o Shows the relationship between the quantity of money demanded and the interest rate Shifts in the demand curve Changes in the aggregate price level Changes in real GDP Changes in technology Changes in institutions A fall in money demand shifts the money demand curve to the left A rise in money demand shifts the money demand curve to the right
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