Monetary Policy
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Part I (DO NOT COPY any part of THIS PAPER) (Part II numbers are from 2014 and 2015 forecast numbers may not have been done correctly – So don’t use any of the Part II numbers since this paper makes a forecast for 2015 Q4 and each quarter of 2015.) This purpose of this example student paper is to show the organization.
Macroeconomics Paper ECON 5F70
PART I: Policies
Monetary Policy
Monetary policy was designed to achieve price-level stability, full employment and economic growth. The Federal Reserve Bank (Fed) uses four key principles to influence money supply: buying or selling government securities through open market transactions, raising or lowering the reserve ratio, raising or lowering the discount rate, and paying banks interest on reserves. Monetary policy can be characterized as either expansionary or restrictive. Expansionary monetary policy increases the money supply (shifts the money demand curve right) in order to reduce interest rates and increase borrowing and spending/reduce taxes resulting in an increase in aggregate demand and a higher the GDP. Restrictive monetary policy reduces the money supply (shift the money supply curve left) in order to increase interest rates, reduce borrowing and spending/increase taxes resulting in a decrease in aggregate demand and decreased inflation.
Over the years, the Fed has used monetary policy often in response to economic recessions and to encourage economic growth. One example was quantitative easing (QE), which was intended to increase the money supply. QE1 began in March 2009 when the Fed purchased $1.75 trillion worth of bonds, most of which were mortgage-backed securities with the goal of lowering interest rates and spurring economic growth. While QE1 did lower interest rates, it was not a total success because many banks did not increase lending as expected. During QE2, which started in November 2010, the Fed purchased $600 billion in treasury bonds over a period of eight months. Because the...
Macroeconomics Paper ECON 5F70
PART I: Policies
Monetary Policy
Monetary policy was designed to achieve price-level stability, full employment and economic growth. The Federal Reserve Bank (Fed) uses four key principles to influence money supply: buying or selling government securities through open market transactions, raising or lowering the reserve ratio, raising or lowering the discount rate, and paying banks interest on reserves. Monetary policy can be characterized as either expansionary or restrictive. Expansionary monetary policy increases the money supply (shifts the money demand curve right) in order to reduce interest rates and increase borrowing and spending/reduce taxes resulting in an increase in aggregate demand and a higher the GDP. Restrictive monetary policy reduces the money supply (shift the money supply curve left) in order to increase interest rates, reduce borrowing and spending/increase taxes resulting in a decrease in aggregate demand and decreased inflation.
Over the years, the Fed has used monetary policy often in response to economic recessions and to encourage economic growth. One example was quantitative easing (QE), which was intended to increase the money supply. QE1 began in March 2009 when the Fed purchased $1.75 trillion worth of bonds, most of which were mortgage-backed securities with the goal of lowering interest rates and spurring economic growth. While QE1 did lower interest rates, it was not a total success because many banks did not increase lending as expected. During QE2, which started in November 2010, the Fed purchased $600 billion in treasury bonds over a period of eight months. Because the...