CENTRAL BANKING AND MONETARY POLICY

Chapter 7

Matakuliah : F0882 - Economic AnalysisTahun : 2009

Bina Nusantara University 3

Learning Outcomes

• Central Banking and the Federal Reserve System

• The Effect of Money on Output and Prices

A Bird’s-Eye View of How Monetary Policy Affects Output and Inflation

The Major Players in Monetary Policy

While the Fed Ultimately Pursues Objectives like Stable Prices, Its Short-

Term Operations Focus on the Intermediate Targets

Federal Reserve Determines Federal Funds Rate

The Money Market

Changes in Monetary Policy or Prices Affect Interest Rates

Central Bank determines the Money Supply, Changing Interest Rates and Investment, Thereby Affecting GDP

An Expansionary Monetary Policy Shifts AD Curve to the Right, Raising Output and

Prices