Team A Week 3 Reflection
Sean Zart, Amanda Englert, Anaysa Santoyo, Melissa Love, Courtney Blood, and
October 28, 2013
ECO/372 Principles of Macroeconomics
University of Phoenix Online
Team A Week 3 Reflection
Looking back on week three, the team discussed the role of the Federal Reserve and how they implement the U.S. monetary policies and how they work. The Contractionary and Expansionary policies are the one in the system that are used to control the amount of currency and the interest rates. We also learned how the money multiplier worked in order to effectively create money. We discussed how the Federal Reserve buys and sell bonds in order to add money into ...view middle of the document...
When it comes to government bonds being a “seller” is not good and can have very negative effects. This is exactly what drives the unemployment rate up. When it comes to government bonds being the “buyer” this is what needs to happen so that if a recession happens the economy can pull out of it. Having buyers and sellers is how the Federal Reserve controls fluctuation of inflation and interest rates. Bonds are specific rates of interest at the time of the loan, risk or demand. With the monetary policy being able to affect inflation expectations and the nominal interest rates, makes the effect on interest rates uncertain. This has made them to follow monetary regimes.
Money can be created when money is deposited in the banks; this is what is known as the money multiplier. How this works is if the reserve ratio is 20% the bank must keep $20 out of every $100. For example if the deposit is $100 the bank keeps $20 and has $80 left to loan, when that $80 is loaned out and then deposited in the bank the same applies the bank keeps 20% which is $16 leaving 64 to be loaned out. This is how money is generated within the banks.
Over all this has been a very mind boggling week, many of the topics were very confusing at first but as time went on and re-reading and reading other students posts it became clearer. The multiplier effect was much more challenging to understand; continuing to read over the material again and again will help to make it all sink in. Although these objectives are challenging concepts to learn, they provide useful information for students to learn in order to better understand the economy.
Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.