l    Expected profitability of investment opportunities: in an expansion, the supply curve shifts to the right

l    Expected inflation: an increase in expected inflation shifts the supply curve for bonds to the right

l    Government budget: increased budget deficits shift the supply curve to the right

6. The Liquidity Preference Framework（重中之重）

7.Demand for Money in the Liquidity Preference Framework

l    As the interest rate increases:

l    The opportunity cost of holding money increases…

l    The relative expected return of money decreases…

l    …and therefore the quantity demanded of money decreases.

8.Shifts in the Demand for Money（都很重要）

l    Income Effect: a higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right

l    Price-Level Effect: a rise in the price level causes the demand for money at each interest rate to increase and the demand curve to shift to the right

l    Liquidity preference framework leads to the conclusion that an increase in the money supply will lower interest rates: the liquidity effect.

l    Income effect finds interest rates rising because increasing the money supply is an expansionary influence on the economy (the demand curve shifts to the right).

Chapter9:Banking

1.The Bank Balance Sheet

l    Liabilities

l    Checkable deposits

l    Nontransaction deposits

l    Borrowings

l    Bank capital

l    Assets

l    Reserves(准备金)

l    Cash items in process of collection

l    Deposits at other banks

l    Securities

l    Loans

l    Other assets

2.Basic Banking:

l    Cash Deposit：Opening of a checking account leads to an increase in the bank’s reserves equal to the increase in checkable deposits

Check Deposit

3．Inter-business

l    Bank settlement

l    Finance lease

l    Fiduciary business

l    Safe deposit box

4. Off-Balance-Sheet Activities

l    Loan sales (secondary loan participation)

l    Generation of fee income. Examples:

Chapter12:Central Banks and the Federal Reserve System(此章省略很多)

1. Structure of the Fed(了解即可)

Board of Governors（7人）

12 FRBs（9人）        Member Banks

FOMC (7+1+4人)

Federal Advisory Council （12人）

2. Federal Reserve Bank（3+3+3人）

Functions：

Clear checks

Issue new currency

Withdraw damaged currency from circulation

Administer and make discount loans to banks in their districts

Evaluate proposed mergers and applications for banks to expand their activities

Act as liaisons between the business community and the Federal Reserve System

Examine bank holding companies and state-chartered member banks

Collect data on local business conditions

Use staffs of professional economists to research topics related to the conduct of monetary policy

Chapter13&14：The Money Supply Process:

1. Players in the Money Supply Process

Central bank (Federal Reserve System)

Banks (depository institutions; financial intermediaries)

Depositors (individuals and institutions)

2．Fed’s Balance Sheet

Federal Reserve System

Assets
   

Liabilities

Government securities
   

Currency in circulation

Discount loans
   

Reserves
   

3.Monetary Base

4.Open Market Purchase

l    The effect of an open market purchase on reserves depends on whether the seller of the bonds keeps the proceeds from the sale in currency or in deposits

l    The effect of an open market purchase on the monetary base always increases the monetary base by the amount of the purchase

Open Market Sale

l    Reduces the monetary base by the amount of the sale

l    Reserves remain unchanged

The effect of open market operations on the monetary base is much more certain than the effect on reserves

5. Fed’s Ability to Control the Monetary Base

Split the monetary base into two components :

MBn= MB - BR

the non-borrowed monetary base :MBn

borrowed reserves:BR

6.The Formula for Multiple Deposit Creation（很重要！必考,记住公式）

7. Factors that Determine the Money Supply

Changes in the nonborrowed monetary base MBn

Changes in borrowed reserves from the Fed

Changes in the required reserves ratio

Changes in currency holdings

Changes in excess reserves

8. The Money Multiplier(重点)

Assume that the desired holdings of currency C and excess reserves ER grow proportionally with checkable deposits D. Then,

c = {C/D} = currency ratio

e = {ER/D} = excess reserves ratio

The monetary base MB equals currency (C) plus reserves (R):

MB = C + R = C + (r x D) + ER

M=m*MB=m*(MBn+BR)

M=1+c/r+e+c

Chapter 15：Tools of Monetary Policy

1. Tools of Monetary Policy

Open market operations

Changes in borrowed reserves

Changes in reserve requirements

Federal funds rate: the interest rate on overnight loans of reserves from one bank to another

2.Demand in the Market for Reserves

Supply in the Market for Reserves

3.Affecting the Federal Funds Rate

4.Open Market Operations（超级重点）

Advantages：

The Fed has complete control over the volume

Flexible and precise

Easily reversed

Quickly implemented

5.Discount Policy（超级重点）

Advantages：

Used to perform role of lender of last resort

disadvantages：

Cannot be controlled by the Fed; the decision maker is the bank

6.Reserve Requirements（超级重点）

Advantages：

l    No longer binding for most banks

disadvantages：

l    Can cause liquidity problems

l    Increases uncertainty for banks

7. Monetary Policy Tools of the European Central Bank

l    Open market operations

l    Lending to banks

l    Reserve Requirements

Chapter16：The Conduct of Monetary Policy: Strategy and Tactics

1. Goals of Monetary Policy

（1）The Price Stability Goal

l    Low and stable inflation

l    Inflation

l    Nominal anchor to contain inflation expectations

l    Time-inconsistency problem

（2）Other Goals of Monetary Policy

l    High employment

l    Economic growth

l    Stability of financial markets

l    Interest-rate stability

l    Foreign exchange market stability

2. Monetary Targeting

l    Advantages

l    Almost immediate signals help fix inflation expectations and produce less inflation

l    Almost immediate accountability

l    Disadvantages

l    Must be a strong and reliable relationship between the goal variable and the targeted monetary aggregate

3. Inflation Targeting

l    Public announcement of medium-term numerical target for inflation

l    Institutional commitment to price stability as the primary, long-run goal of monetary policy and a commitment to achieve the inflation goal

l    Information-inclusive approach in which many variables are used in making decisions

l    Advantages

l    Does not rely on one variable to achieve target

l    Easily understood

l    Reduces potential of falling in time-inconsistency trap