Monetary Policy - Learning Objectives

After studying the portion of this blog devoted to monetary policy (the primary macroeconomic policy tool), you should be able to:

· define monetary policy.
· define fiscal policy.
· explain how expansionary monetary policy influences the economy.
· explain how contractionary monetary policy influences the economy.
· define money.
· explain the three functions of money and provide examples of money used in each of these functions.
· define barter, double coincidence of wants, and the relationship between the two concepts.
· explain the difference between currency, paper bills, and coins.
· explain the difference between fiat money and commodity money.
· recite, translate, and explain the Jacksonville University motto.
· explain the difference between the M1, M2, and M3 definitions of the money supply.
· define a central bank.
· explain when and why the Federal Reserve System was created.
· list and explain the functions of the Federal Reserve System.
· explain the structure of the Federal Reserve System and describe the duties performed by each part.
· list the cities in which the 12 regional Federal Reserve Bank are headquartered.
· list and explain the three instruments of monetary policy.
· define and explain fractional-reserve banking.
· define reserves and explain the difference between required reserves and excess reserves.
· explain the difference between the reserve ratio (R) and the required reserve ratio (rr).
· define and explain the money multiplier.
· define and explain the monetary base.
· explain the relationship between assets, liabilities, and net worth.
· define U.S. government securities.
· define liquidity.
· use T-accounts to illustrate how required reserves help make the banking system solvent.
· explain the difference between the discount rate and the federal funds rate.
· define open market operations
· explain how the Federal Reserve System uses the required reserve ratio to influence the economy.
· explain how the Federal Reserve System uses the discount and federal funds rates to influence the economy.
· explain how the Federal Reserve System uses open market operations to influence the economy.
· define a commercial bank.