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1-10C Money For Nothing (Monetary Policy & Fed)Online version
GE.7.2 Define and explain monetary policy and its tools. (E)
GE.7.5 Analyze how the Federal Reserve uses monetary policy to promote price stability, full employment, and economic growth. (E)
GE.6.3 Demonstrate how banks create money through the principle of fractional reserve banking.
GE.6.4 Describe the structure and functions of the Federal Reserve System. (E)
GE.6.5 Explain how interest rates act as an incentive for savers and borrowers. (E)
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Government spending during the vietnam war created inflation. The Fed should have raised interest rates to reduce the money supply (reduce inflation), but Lyndon Johnson did not want unemployment to hurt his ____ ____ , so the Fed did nothing.
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1944, Bretton Woods conference tasked the Federal Reserve with controlling ____ , to protect prices. But the 1946 Employment Act tasked the Fed with controlling ____ , to prevent another Great Depression. It is difficult to do both.
3
Paul Volcker ended '70 stagflation (inflation & unemployment) by raising interest rates. No one tried this because they were afraid of starting a _____ . Interest rates rose to record levels, & unemployment did rise, but inflation eventually fell.
4
Chairman of the Federal Reserve admitted that the Fed took actions that led to the ____ ____ . When people withdrew money & banks closed, the Fed did not help. Trying to protect the gold standard, the Fed raised rates when people needed loans.
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The Federal Reserve System prints money, so money is more available, so interest rates fall, & now people are more likely to spend. Or they take money out of economy, money is scarce, rates rise, & people spend less. This process is ____ ____ .
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Europe ended the gold standard & the U.S. became the world’s strongest economy. This is when the Federal Reserve begins using monetary policy to impact the economy. It was right after ____ ____ I.
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The gold standard guarantees the value of money by basing it on a precious metal. This makes the economy stable, because it limits a bank’s ability to print too much ____ ____ .
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Before 1971 in the U.S., & before WW 1 in the U.K., paper money was backed by gold. It was called the ____ ____ . Banks could exchange money for gold, and vice versa.
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____ ____ provide support during a financial panic, such as the Reichbank, the Bank of England. After the early 1900s the U.S. created the Federal Reserve System.
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Prior to 1913, citizens would lose trust in the bank and ____ the ____ . The bank did not have enough money to cover this and would close. Woodrow Wilson created the Federal Reserve to lend money to smaller banks, so they can stay open.
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1960s, Lyndon Johnson declared war on poverty, so people needed jobs. But the next crisis was too much money in the economy, or inflation. However, since fear of ____ was the new ideology, Johnson would not allow interest rates to be raised.
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2008 Crisis: Many businesses stopped producing goods & started making loans. They stopped providing services & started financing. This led to the ____ ____ taking up twice as much room in the U.S. economy.
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1960s, government spending created inflation, from the ___ in ____ & from the Great Society, so prices rose. Federal Reserve could have raised interest rates to reduce inflation, but this increases unemployment, which would hurt the war on poverty.
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After the 1980s, since Greenspan protected the stock market, the U.S. encountered a new inflation. Not an inflation of actual goods & products, but of stocks, bonds, and real estate. This is called ____ ____ .
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The ____ of ____ began in the 1970s, when Pres. Nixon ended the gold standard, & paper money was no longer linked to gold. He did this because inflation had created more money than gold, because Johnson would not allow interest rates to be raised.
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2008 crisis: instead of inflation of products, we had inflation of assets. Housing prices & Stock Market went up & we thought we were rich, but it wasn’t riches. Since it was asset prices, it was the ____ of ____ .
17
W.W. I ended the gold standard in Europe, but the U.S. kept using it. After W.W. 2, other countries based their currency on the U.S. dollar, & the federal reserve now could impact the world. This took place in a monetary conference at ____ ____ .
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A ____ ____ is when a person takes risks because someone else is responsible for the consequences. Before the 2008 crisis, the Fed protected the stock market, so people took more risks & borrowed more money.
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1913, Federal Reserve created to prevent banking panics in the real economy. However, 1980s, Greenspan began using the Fed to change interest rates in order to fix problems in the ____ ____ .
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A bull market is when the price of ____ , ____ , & ____ ____ rises. This is called asset inflation. This does not include the prices of actual goods & products. Investors love this, because they are making money, but the boom will not last.
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