FI 301 Lecture Notes - Lecture 5: Prime Rate, Federal Funds Rate, Producer Price Index
Document Summary
Monitoring indicators of economic growth: the fed monitors indicators of economic growth. National income- average income (standard of living) Industrial production index (more sales), retail sales index (buying), home. Sales index (jobs: leading economic indicators- show future growth/dip, coincident economic indicators- show present, lagging economic indicators- show change after. Coincident index: employees on non agricultural payrolls- employees are hired/fired as needed (seasonal employment, personal income less transfer payments, industrial production- what is being currently produced, manufacturing and trade sales. Producer and consumer price indexes: (ppi and cpi) Producer price index represents prices at the wholesale level. Consumer price index represents prices paid by consumers (retail level) Correcting a weak economy- buy treasuries, decreases interest rates. Correcting high inflation- increases discount rate; decreases in money supply and increases in interest rates. Setting a target for federal funds rate- change the discount rate; ffr sets a floor on interest rates.
