《宏观经济学教学课件》Chapter_11.pptVIP

Introduction In this chapter we use the IS-LM model developed in Chapter 10 to show how monetary and fiscal policy work Fiscal policy has its initial impact in the goods market Monetary policy has its initial impact mainly in the assets markets Because the goods and assets markets are interconnected, both fiscal and monetary policies have effects on both the level of output and interest rates Expansionary/contractionary monetary policy moves the LM curve to the right/left Expansionary/contractionary fiscal policy moves the IS curve to the right/left Monetary Policy The Federal Reserve is responsible for monetary policy in the U.S. ? conducted mainly through open market operations Open market operations: buying and selling of government bonds Fed buys bonds in exchange for money ? increases the stock of money (Fig. 11-3) Fed sells bonds in exchange for money paid by purchasers of the bonds ? reducing the money stock Monetary Policy Consider the process of adjustment to the monetary expansion At the initial equilibrium, E, the increase in money supply creates an excess supply of money The public adjusts by trying to buy other assets Asset prices increase, and yields decrease ? move to point E1 Money market clears, with lower interest rate Decline in interest rate results in excess demand for goods Output expands and move up LM’ schedule Final position is at E’ Transition Mechanism Two steps in the transmission mechanism (the process by which changes in monetary policy affect AD): An increase in real balances generates a portfolio disequilibrium At the prevailing interest rate and level of income, people are holding more money than they want Portfolio holders attempt to reduce their money holdings by buying other assets ? changes asset prices and yields The change in money supply changes interest rates A change in interest rates affects AD The Liquidity Trap Two extreme cases arise when discussing the effects of monetary policy on the economy ? first is the liquidity