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Federal Reserve Bank and Money Supply Dynamics

Learn about the Federal Reserve Bank's role in controlling money supply, inflation, and prices. Explore how Open Market Operations impact cash circulation and the economy. Understand the complexities of monetary policy and its influence on economic stability. Delve into the consequences of Federal Reserve actions and interest rate decisions on the economy.

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Federal Reserve Bank and Money Supply Dynamics

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  1. Chapter 11Money and the Economy

  2. Money Supply and Prices • Inflation • Deflation • Money Supply • $ in circulation • Increase = inflation • Decrease= deflation • Controlled by Federal Reserve Bank

  3. Money Supply and Inflation

  4. Federal Reserve Bank • Created in 1913 to oversee banking • Controls monetary policy • Money supply • Interest rates • Reserve requirements • Chairman Ben Bernanke

  5. Open Market Operations • Buying/Selling of Securities • Buys: Increases Money Supply • Cash in hands of consumers • Sells: Decreases Money Supply • Cash in hands of govt. • Affects value of dollar

  6. Monetary Policy • Federal Reserve Actions • Designed to stabilize the economy • Sometimes makes it worse • Lag time 2-4 Quarters • Ex. Creation of Housing Bubble • Interest rates too low

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