Matakuliah
Tahun
: F0882 - Economic Analysis
: 2009
CENTRAL BANKING AND
MONETARY POLICY
Chapter 7
Learning Outcomes
• Central Banking and the Federal Reserve System
• The Effect of Money on Output and Prices
Bina Nusantara University
3
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