Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 10 Money and Prices in the Long Run
Chapter 29 of 36 The Monetary System
Section 10 of 22
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· the seven members of the Federal Reserve Bank (Fed) board of governors
· five of the twelve Fed regional bank presidents
At each FOMC meeting held every six weeks in D.C. all twelve Fed regional bank presidents attend but only five get to vote.
The five with voting rights rotate among the twelve regional presidents.
The president of the New York Fed always gets a vote, because
· New York is the traditional financial center of the U.S. economy
· all Fed purchases and sales of government bonds are conducted at the New York branch
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The FOMC has the power to increase or decrease the number of dollars circulating in the economy.
The Fed's primary tool of money supply control is the open-market operation, which is the purchase and sale of U.S. government bonds.
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When the FOMC decides to increase the money supply the Fed buys government bonds from the public.
The Fed simply creates the dollars to buy the bonds.
After the FOMC purchase of bonds the additional dollars paid for the bonds are circulating in the economy, the money supply has increased.
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When the FOMC decides to decrease the money supply the Fed sells government bonds to the public.
The Fed then destroys the dollars they receive from the sale, by wiping them off their books.
After the FOMC sale of bonds and destruction of the dollars fewer dollars are circulating in the economy, the money supply has decreased.
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Restated from Chapter 1, the ten principles of Economics:
1: people face trade-offs
2: the cost of something is what you give up to get it
3: rational people think at the margin
4: people respond to incentives
5: trade can make everyone better off
6: markets are usually a good way to organize economic activity
7: governments can sometimes improve market outcomes
8: a country's standard of living depends on its ability to produce goods and services
9: prices rise when the government issues (creates) too much money
10: society faces a short-run trade-off between inflation and unemployment
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The power of the Fed rests on these two principles
· #9: prices rise when the government issues (creates) too much money
· #10: society faces a short-run trade-off between inflation and unemployment
The Fed's policy decisions have an important influence on the economy's
· inflation rate in the long run
· employment and production level in the short run
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traditional financial center
dentō-tekina kinyū sentā
伝統的な金融センター
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