We have had to go over chapters 13, 14 and 15 a little faster than planned. Therefore, this webpage was developed to help you study. Included on this webpage are:
ONLINE MESSAGE BOARD
If you have any questions while you are studying you can ask them on our online Discussion Forum / Message Board. I will be checking the Message Board whenever I am online and will answer your questions.
To use the the Message board:
EXTRA STUDY SESSION
I will be available on Tuesday, Dec. 7, 1:45- 5:00 to answer questions. Come to my office. If I get a classroom the room number will be posted on my office door (J-262).
CHAPTERS 9 and 12
CHAPTER 13
CHAPTER 14
CHAPTER 15
EXAM 3 EXTRA CREDIT ESSAY QUESTION
The exam 3 extra credit essay question will be something like:
Read the following news article. Discuss the monetary policy that the Federal Reserve is conducting using the three-graph model that we have been discussing in class. Be sure to include the following:
Here is a sample:
Fed cuts discount rate January 4, 2001: 7:44 p.m. ET
Lowers symbolic rate by another quarter point at request of regional banksNEW YORK (CNNfn) - The Federal Reserve Thursday lowered the U.S. discount rate a quarter percentage point, a day after slashing both the discount rate and the fed funds rate amid signs of a slowing economy.
This rate cut is more symbolic, but it also causes a great deal of a psychological benefit to the market
Art Hogan
Chief Market Analyst
Jefferies & Co.
The central bank, which sets U.S. monetary policy, lowered the discount rate by another quarter percentage point to 5.5 percent from 5.75. On Wednesday, the Fed cut the discount rate a quarter-point from 6.0 percent to augment a half-point cut in the key federal funds overnight bank lending rate.
The central bank said its board of governors had voted on the cut in the discount rate, the rate charged on Fed loans to commercial banks, unanimously at the request of all 12 regional Federal Reserve banks. The central bank had said Wednesday it was prepared to move the discount rate if the regional banks asked it to do so.
Answer:
The Fed cut the DISCOUNT RATE in order to increase the excess reserves of banks and thereby INCREASE THE MONEY SUPPLY. See graph 1. The MS increases from MS1 to MS2. As a result of the increase in the MS, the interest rate will fall. See graph 1. The interest rate falls from r1 to r0.The lower interest rate will INCREASE the amount of INVESTMENT. See graph 2. As interest rates fall the number of profitable investment projects increase so the amount of investment increases from I1 to I2.
As investment increases AD will increase. See graph 3. Aggregate demand increases from AD1 to AD2. As a result the level of real GDP increases from GDP1 to GDP2. As GDP increase, unemployment will derease. there is also a chance that inflation will increase a little.
Graph 1
Graph 2
Graph 3
