How monetary policy influence aggregate supply and demand

Reference no: EM13454643

According to the Federal Reserve's Federal Open Market Committee (2011), the Federal Reserve "controls the three tools of monetary policy-open market operations, the discount rate, and the reserve requirements."

It goes on to say that using these three tools, the Federal Reserve influences the demand for and supply of balances that depository institutions hold at the Federal Reserve Banks, and in this way, it alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Changes in the federal funds rate trigger a chain of events that affect the following:

Other short-term interest rates
Foreign exchange rates
Long-term interest rates
The amount of money and credit in the system
Employment
Output
Prices of goods and services (i.e., inflation)
Investment

Using your understanding of the financial system, the demand for money, banking and the money supply, the stock market, interest and spending, interest and investment, how money moves, and how monetary policy affects aggregate supply and demand and inflation, explain exactly how a change in the federal funds rate can trigger all these reactions. Use at least 4 graphs. Do you think we are in a liquidity trap today? Why or why not?

Reference no: EM13454643

Questions Cloud

A true-breeding plant that produces yellow seeds is crossed : a true-breeding plant that produces yellow seeds is crossed with a true-breeding plant that produces green seeds. the

Evaluate how you might apply these principles to the : discuss the principles that characterize an empowerment approach to social service management.evaluate how you might

Examine how law of demand applies to a recent purchase : analyze how the law of demand applies to a recent purchase that you made. describe how the product has changed in price

Why issues of diversity within the workplace are paramount : why issues of diversity within the workplace are paramount for human service workers and for management of human

How monetary policy influence aggregate supply and demand : according to the federal reserves federal open market committee 2011 thenbspfederal reserve controls the three tools

How your dream agency will decrease a sense of : discuss the principles that characterize an empowerment approach to social service management.evaluate how you might

Must use some of the following questions as a guide what : pick a magazine advertisement youd love to tear apart. note do not critique the cover of a magazine. instead critique

Compare the observed and equilibrium heterozygosities does : harris 1966 measured the number of genotypes at the alkaline phosphatase locus in the english population. these are

Describe the term binomial system of nomenclature who : q1 what is the binomial system of nomenclature? who developed this system? is the name escherichia coli written

User Account

All Pages