Instructor: Basil Al Hashimi
Please be sure to visit each of the following links:
Instructions for Module # 3
- Required Reading as follows: Chapters 12 through 15 in Macroeconomics
- Written Report Assignment:
Prepare a 2-3 page report addressing one of the questions below. The papershould be based
upon reading, research, or experience, such as a personal jobexperience or case study. Concepts from the text should be integrated whenapplicable. Identify the macroeconomics concept(s) or principle(s) involved,relate the report to a specific
issue in our economy, and provide conclusions,recommendations, or lessons learned as a result of your research.
Do commercial banks create money? Explain. What is the difference between monetary policy and fiscal policy? Explain
theimpact of both policies on the economy.
Important Points of Chapters 12-15 (handout for
these chapters):
Written by: Basil Al-Hashimi Course: Macroeconomics 111
The following notes have been created in order to assist
you in your understanding of the text as well as to help you prepare for
your examination. Chapters 12-15
- A primary financial market is one in which newly issued financial assetsare sold.
-
Money market assets are financial assets that mature in less than one year.
- A savings and loan association is an example of a depository institution.
- A pension fund is an example of a contractual intermediary.
- A money
market mutual fund is an example of an investment intermediary.
- An investment bank is an example of a financial broker.
- The advantage of a mutual fund is diversification.
- Generally, whenever market interest rates rise,
bond prices fall.
- Banks hold reserves either as cash or as deposits at the central bank.
- The chief difference between the M1 and M2 of money supply is thatM2 includes money market deposit accounts and other assets with a
lowerliquidity than the assets included in M1.
- The L definition of money is the broadest measure, consisting of almostall short-term financial assets.
- Liability management refers to how a bank attracts deposits and what
itpays for them.
- Banks must keep a percentage of their deposits on hand as requiredreserves.
- Commercial banks create money by making loans and buy securities.
- The Ratio 1/r is called the simple money
multiplier.
- The three monetary tools include open market operations, changing thereserve requirement and changing the discount rate.
- Keynesians believe the Fed should target interest rates in settingmonetary
policy.
- Members of the Board of Governors are appointed to 14-year terms bythe president.
- The most important policy-making body of the Fed. Res. System is theFederal Open Market Committee (FOMC).
- The central
ruling body of the Federal Reserve System is the Board ofGovernors.
- The FOMC is composed of the 7 Governors of the Fed. Res. System and5 presidents of regional Fed.Res. Banks.
- To decrease the nation's money supply, the Fed
can sell governmentsecurities in the open market.
- Banks hold as little in reserves as possible because reserves earn nointerest for a bank.
- The discount rate is the interest rate the federal Reserve Banks chargebanks
for loans.
- Open market operations refers to the Fed's buying and sellinggovernment securities.
- Government securities are Treasury bills and Treasury bonds.
- The reserve requirement is the minimum ratio of reserves
to depositsthat a bank must have.
- The interest rate banks charge each other to borrow excess reserves iscalled the Federal Funds rate.
- A countercyclical monetary policy would not include raising requiredreserve ratios
when there is high unemployment.
Basil Al Hashimi
Please be sure to visit each of the following links:
Please contact Basil
al Hashimi for comments or corrections email
Red Mountain Campus phone:
480-654-7715 see a map
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