Why does the Money Supply (MS) need to grow in a growing economy?
To help demand grow as fast as output (Q) and a little Inflation (Inf)
100
What is the current rate of the FFR?
1.25%
100
What is the reason The Fed has to find a new way to raise the FFR?
Quantitative Easing created such massive amount of reserves - $2.4 Trillion – that normal selling of T-Bills will not affect the FFR. (i.e. Soaking up the ocean with a sponge)
100
Countries with rapid MS growth have high inflation rates or output growth rates?
High Inflation, Output growth still always depends on labor force and labor productivity
growth
100
Unemployment is caused by what?
Not enough AD
200
How does The Fed make it grow every year?
Buying enough Treasury securities to make reserves grow
200
After lowering the FFR as far as it could go in 2008, The Fed moved to Quantitative Easing. What is Quantitative Easing?
Purchases of large quantities of Treasury securities
200
In order to raise the FFR, The Fed is going to increase what other interest rate?
The rate it pays to banks on their ER’s
200
When The Fed changes policy, how long does it take for interest rates to change?
Just hours
200
Inflation is caused by what?
Too much AD
300
So, what should their (The Fed) holdings of Treasury Securities do every year?
Rise gradually
300
How is Quantitative Easing different from what the Fed were doing before when they lowered the FFR?
Not designed to lower the FFR and in much larger volume
300
What does excessive money supply growth cause?
Inflation
300
When The Fed changes policy, how long does it take for output rates to change?
6 months to 1 year
300
How does the Fed increase AD?
By lowering FFR and increasing MS growth rate
400
What did The Fed do to the FFR (Federal Funds Rate) in the early stages of the financial crisis and recession?
Lowered FFR – A LOT!
400
What happened to ER’s (Excess Reserves) in the system?
Up by $2.5 Trillion
400
Inflation occurs when MS grows faster than what?
Output
400
When The Fed changes policy, how long does it take for inflation rates to change?
2-3 years
400
How does the Fed slow down AD?
By raising the FFR and decreasing MS growth rate
500
How low did the FFR go when in the early stages of the Financial crisis and recession?
Almost 0 - < .25 %
500
Why is it unusual for the ER to be $2.5 Trillion?
ER’s are usually very low
500
What are MS growth and and inflation when there is an excess?
Very Strong and Positive
500
Today’s inflation rate was determined by MS growth when?
2-3 years ago
500
What are unemployment and inflation known as respectively?