Module 6 presents a framework for the introduction of money into macroeconomic analysis, provides an overview of the importance of the money supply and then examines money creation by the banking system.

Module #6: Money, Banking, and Monetary Policy

Module #6: Money, Banking, and Monetary Policy

Module 6 presents a framework for the introduction of money into macroeconomic analysis, provides an overview of the importance of the money supply and then examines money creation by the banking system. Module six also provides a discussion of the demand for money and examines the conduct of monetary policy in the real world. Finally the issue of the problems the Federal Reserve faces when it tries to stabilize the money supply or interest rates is presented.

Learning Objectives:

Define the fundamental functions of money.
Explain official definitions of the quantity of money in circulation.
Understand why financial intermediaries such as banks exist.
Explain the essential features of federal deposit insurance.
Describe how the Federal Reserve assesses reserve requirements on banks and other depository institutions.
Explain why the money supply changes when someone deposits in a depository institution funds transferred from the Federal Reserve System.
Determine the maximum potential extent to which the money supply will change following a Federal Reserve monetary policy action.
Identify the key factors that influence the quantity of money that people desire to hold.
Describe how Federal Reserve monetary policy actions influence market interest rates.
Evaluate how expansionary and contractionary monetary policy actions affect equilibrium real GDP and the price level in the short run.
Understand the equation of exchange and its importance in the quantity theory of money and prices.
Discuss the interest-rate-based transmission mechanism of monetary policy.
Explain why the Federal Reserve cannot stabilize both the money supply and interest rates simultaneously.
Explain key issues the Federal Reserve confronts in selecting its target for the federal funds rate.

Module 6 Assignment1500 words

Assignments:

–Participate in course discussion (100 points total)

Problems:

Complete problems D-2 and D-4 in chapter 17.

Examples for Critical Thinking:

Answer the question in “Example: Cash-Squeezed Small Businesses Resort to Barter” in Chapter 15.

Issues and Applications:
Complete “Issues and Applications: Ballooning Excess Reserves and a Shrinking Money Multiplier” in chapter 16.