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Class notes ECON

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Economics college class notes are comprehensive collections of information and concepts covered in undergraduate-level economics courses. These notes serve as study aids, summarizing lectures, textbook readings, and applied examples. They are divided into two main branches: microeconomics and macro...

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  • November 20, 2024
  • 1
  • 2024/2025
  • Class notes
  • Colleen cary
  • All classes

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2. Monetary Policy

A. Central Bank Roles

● Control money supply.
● Set interest rates (e.g., Federal Funds Rate in the U.S.).
● Manage inflation and unemployment.

B. Monetary Tools

1. Open Market Operations (OMO): Buying/selling government bonds.
2. Reserve Requirements: Minimum reserves banks must hold.
3. Discount Rate: Rate charged to commercial banks for loans.

3. Fiscal Policy

A. Types

1. Expansionary: Increase spending, cut taxes (boost AD).
2. Contractionary: Decrease spending, raise taxes (reduce AD).

B. Multiplier Effect

● Multiplier=11−MPCMultiplier = \frac{1}{1 - MPC}Multiplier=1−MPC1​
○ Marginal Propensity to Consume (MPC): Fraction of additional income spent.

Objectives of Fiscal Policy

1. Economic Stability:
○ Counter cyclical economic fluctuations.
○ Avoid prolonged recessions or overheating in booms.
2. Employment Generation:
○ Create jobs directly through government projects.
○ Indirectly boost private sector hiring through incentives.
3. Economic Growth:
○ Support long-term investments in infrastructure, education, and technology.
4. Redistribution of Income:
○ Reduce income inequality through progressive taxation and welfare programs.
5. Control of Inflation and Deflation:
○ Manage AD by adjusting spending and taxation levels.

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