FIN 350 Chapter 3: The Fed and Interest Rates
Document Summary
Difference between monetary policy and fiscal policy: monetary policy. Deals with the central bank and federal reserve system. Managing the money supply by monitoring the economy: fiscal policy. The fed measures and manages the money supply: two different measures of monetary base. Financial assets that people hold to buy things with (transactional balances) Includes financial assets such as currency and checking accounts as depository institutions. M2: attempts to manage the monetary supply primarily through open-market operations. When they want to increase the money supply. Purchases t-bills (through the new york fed) When the want to decrease the money supple. Fed influences the level of interest rates in the economy. Sells t bills on the open market: to influence monetary policy the fed targets changes to the fed funds rate. The interest rate on overnight loans of reserves among banks: through open market operations.
