AS.180.101 Lecture Notes - Lecture 18: Federal Funds Rate, Open Market Operation, Loanable Funds
Document Summary
Lecture #19: monetary policy and the taylor rule (textbook: ch 15 p. 487 489; 493-497; 507 511) Monetary policy many jobs: low inflation (not too low, low unemployment (not too low, strong real gdp growth, secure financial system. Monetary policy has one major power: influencing interest rates: fed targets short term interest rates (fed funds rate) The way you moderate monetary policy is you manipulate the federal funds rate (overnight interest rate one bank pays another) Changes for key interest rates: they can alter real economy decisions: see slide 6. Changing real economy circumstances can change inflation"s pace: by raising interest rates, slowly the economy, and increasing unemployment, the. Fed may succeed in pushing inflation lower: by lowering interest rates, speeding economic growth up, and lower unemployment, the fed may oversee a rise for the inflation rate. Fed can change interest rates and in turn change the inflation rate. Extraordinary slippage between the money supply and growth.
