Match the right with the left correctly note that emp...

Match the right with the left correctly. Note that: EMP - Expansionary Monetary Policy CMP - Contractionary Monetary Policy EFP - Expansionary Fiscal Policy CFP - Contractionary Fiscal Policy PL - Price Level GDP - Gross Domestic Product Increase of government spending The Fed buying U.S. Treasury bonds The government decreases government spending The Fed sells U.S. Treasury bonds The government out takes The government raine corporate twes The fed raise the discount rate The Fed lowers the reserve requirement

Transcript

00:01 When the fed buys bonds in open market operations, we need to think about what they're actually doing.

00:06 When the fed sends traders to the open market, these traders have to use united states currency to buy bonds on the open market.

00:16 When they use these federal dollars on the open market, that increases the money supply, as money flows from the federal reserve to the money supply.

00:29 Now, if the fed reduces the reserve requirement, what does this actually mean? this means that banks have to hold on to less currency, which means that banks can then lend out more money.

00:44 When banks lend out more money, the money supply goes up, and you can think about more money being in people's pockets.

00:52 Now, if the fed increases the interest rate, it pays on reserves.

00:56 This is a little more nuanced.

01:00 So when the fed pays on this interest rate, on reserves, the fed is going to pay banks more to hold on to more cash.

01:12 So it's going to pay banks to hold on to more cash.

01:16 So because the banks like this, they're going to hold on to that currency, loan out less, and so less money will be loaned out, which means that the money supply will be decreased.

01:30 Next, if citibank repays a loan that had previously taken from the fed, what does this mean? well, this means that banks, in this case, city bank, it's going to pay back its loan to the federal reserve.

01:47 Well, that money was once out here in the money supply, so it flows along here.

01:51 And so we can see that that will actually decrease the money supply.

01:57 Okay.

01:58 Let's pretend that a rash of pickpocketing happens and people decide to hold on to less currency.

02:03 Well, what is this actually going to do? well, people are scared to hold on the cash.

02:08 So what are people going to do? they're going to put their money in a bank.

02:14 If they're putting their money in the bank, that means that there's less cash in their hands, more in the bank.

02:19 And that means that banks can then loan out more money for mortgages and things like that.

02:24 What is that going to do to the money supply? well, that's going to increase the money supply...

Question

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