ECON 222 Lecture 11: econ 222 notes ch 11

• School: Cal Poly
• Department: Economics
• Course: ECON 222
• Professor: Adam Werner

Document Summary

Inflation rate = growth rate of money supply - growth rate of real gdp. Inflation imposes social costs such as: raising logistical costs. Inflation can lead to counterproductive policies such as price controls. Inflation generates social benefits such as: generating government revenue from printing currency (seigniorage, sometimes stimulating economic activity, the central bank is the government institution that, monitors financial institutions, controls certain key interest rates. It audits the financial statements of large banks. It monitors the amount of shareholders" equity of these large private banks. It requires them to perform a stress test periodically. Interbank transfers: the central bank overseas interbank payments, management of macroeconomic fluctuations by manipulating the quantity of bank reserves, when the central bank manipulates the quantity of bank reserves, interest rates change. In an open market purchase, the fed buys gov. Bonds from private banks and in return gives the private banks more reserves. In an open market sale, the fed sells gov.