UNITED STATES FEDERAL RESERVE SYSTEM
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AVOIDING INFLATION
• Various monetary policies used to Avert inflation • Contractionary Monetary Policy:
• The Fed will sells bonds and therefore decrease the money supply. Thereby raising the fed funds rate to decelerate inflation

• Higher interest rates during signs of inflation to contain money growth • Monitor unemployment rates:
• high unemployment, inflation will be low
*(Colander, 2012)

MONETARY POLICY TO CONTROL MONEY SUPPLY
• By controlling the reserve rate, the Fed can influence the amount of money in an economy
• Expansionary policy
• Goal is to decease reserve rate so that the money supply increases. If there is more money in the economy then an increase in investments and output will result.

• Contractionary policy
• To decrease the money supply, the Federal Reserve System will higher the required reserve rate. Thus, discouraging added spending and investments.
*(Colander, 2012)

STIMULUS AND MONEY SUPPLY
• Money Supply
• The money supply is determined by the monetary base and to some extent by the amount of credit banks are willing to extend.

• Monetary Base
• Vault cash, deposits in the Fed, currency in circulation

• Stimulus Program
• Fiscal and monetary policy implemented by the government to motivate growth in a slowing economy

STIMULUS AND MONEY SUPPLY
• A stimulus program injects money into the economy by decreasing taxes, lowering interest rates, and increasing government spending • Money supply will increase by the same amount of money created

STIMULUS AND MONEY SUPPLY
• The Recovery Act of 2009
• • • • $297.8 billion in tax cuts $237.5 billion in contracts, grants, and loans $229.2 billion in entitlements $840 billion injected into the economy over 10 year period

REFERENCES
• Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: