Fin 4319-Lecture 6

Question 1

What are steps of Federal Reserve to influence monetary conditions?

Answer 1

Credit availability, interest rates, the money supply, and ultimately security prices - so it can promote price stability (low inflation) and other macroeconomic objectives.

Question 2

What is the process of monetary policy implementation?

Answer 2

Monetary Policy Tools (OMO-DRC-RRRC) effects Financial Markets (CBR, CMS, CCA, CIR, CB, CSP, CFER) & Targets (MB-IR); Targets effect Financial Markets; Financial Markets effect Objectives (PS-EG-LI-FE-SPIT); Objectives analysis and feedback Monetary Policy Tools.

Question 3

What are Monetary Policy Tools includes?

Answer 3

Open Market Operations (OMO), Discount Rate Changes(DRC), Reserve Requirement Ratio Changes(RRRC).

Question 4

What are Targets included?

Answer 4

Money Base (MB) - M1 & M2, Interest Rates (IR) - fed funds.

Question 5

What are Financial Markets included?

Answer 5

Change in Bank Reserves (CBR), Change in Money Supply (CMS), Change in Credit Availability (CCA), Change in Interest Rate (CIR), Change in Borrowing (CB), Change in Security Prices (CSP), Change in Foreign Exchange Rates (CFER).

Question 6

What are Objectives included?

Answer 6

Price Stability (PS), Economic Growth (EG), Low Inflation(LI), Full Employment (FE), Sustainable Pattern of International Trade (SPIT).