SS 141 Lecture Notes - Lecture 8: Monetary Policy, Commercial Bank, Money Supply
Document Summary
Chapter 16 interest rates and monetary policy. The price paid for the use of money. Many diferent types of interest rates: libor. Speak as if only one interest rates. Determined by the money supply and the money demand. Interest rates and bond prices: inversely related, price of bonds go up interest rates goes down, prices of bonds go down interest rates goes up. Monetary policy: government control of the supply of money: money- supply. Open market operaions: most common tool: (fed res) buying and selling of government securiies (bonds, commercial banks and the general public, used to inluence the money supply. When the fed sells securiies, commercial bank reserves are reduced. Will happen when the economy faces a recession. Lower target for federal funds rates: objecive is lowering interest rate, fed buys back securiies, expanded money supply. Fed buys bonds, lowers reserve raio, lowers the discount rate, or increases reserve aucions (reserve= money)
