Inflation
Storyboard Text
- Fiscals take longer because they have to go through the President and congress with legislation and implementation.
- Yeah, I feel like the FED has more impact on these situations because they control; discount rates, open market operations, and reserve requirements.
- Definitely, the federal reserve has more speed and flexibility than the government because the FED can implement monetary policies within days but fiscal policies take time to implement.
- Okay this is starting to make since now. So with open market operations the FED can increase the money supply by buying treasuries and adjust the interest rates to control inflation.?
- The FED with OMO would just raise or lower the cost of borrowing money so they don't have to implement a regulation to control lending.
- Kind of yes in that case they would decrease inflation if it was the other way with decreasing the money supply and interest rates inflation would increase.
- Just so I can picture it, how would all of this look like on a loanable fund market graph?
- Due to the changes in expectations with inflation supply and demand can shift. With a decrease in inflation the AS would decrease and so would AD.
- Yes, and as a tool it is used to have an influence on economic activity and control the money supply.
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