Sitting down in your office, coffee in hand, you jot down some questions you think might come up during the day’s discussions. Prepare a report, using the report guidelines from the course website, which incorporates the answers to these questions.

 

Future Security Bank – QUESTIONS

 

 

Sitting down in your office, coffee in hand, you jot down some questions you think might come up during the day’s discussions.  Prepare a report, using the report guidelines from the course website, which incorporates the answers to these questions.

 

 

Q. 2.     Investors are expecting the Federal Reserve to take action.  Discuss the strategy you expect the Federal Reserve to follow and broadly what you predict it will do.   You would want to analyze the strategy using aggregate demand-aggregate supply.  Of course, you also want to be able to answer the question using less technical language.

 

QUESTION 2 OUTLINE:

In the case: “real GDP seems to be slowing”, so broadly say that we assume the Fed will want to enact expansionary monetary policy to combat a presently decreasing GDP

·         Analyze expansionary policy through the lens of AG/ AS (SRAS v. LRAS)

·         Also analyze using “less technical language”

 

n  Aggregate Demand (AD) – Quantity of Goods and Services that Households, Firms, and the Government Want to Buy at Each Price Level

n  Long Run Aggregate Supply (LRAS) – Production of Goods, Services (Real Output) Depends on Supply of Labor, Capital, Natural Resources, Technology – Price Level Does Not Affect

n  Short Run Aggregate Supply (SRAS) – Quantity of Real Output Supply at Each Price Level

 

Question 2: Aggregate Demand – Aggregate Supply

 

 

Q. 3.     The Federal Reserve’s strategy will require changing the money supply.  How does the Federal Reserve do this, and how (and why) does this affect interest rates?

 

 QUESTION 3 OUTLINE:

How does the Fed change the $ supply? How does this affect interest rates?

*mention FOMC and the fact that they will be meeting to determine best course of action to correct weak economy (that the Fed will eventually enact)

1. Define monetary policy

2. Define Expansionary monetary policy

3. Steps that the Fed can use to accomplish this (add further detail)

n  Interest Rate (Price of Money) - Determined in a Market for Loanable Funds

n  Money Demand Curve Shows Relationship between Money Demand and Interest Rates

n  Money Supply – Quantity of Money Fixed by the Federal Reserve

Question 3: Money Supply and Interest Rates

 

 

 

Q. 4.     If the Federal Reserve decides to act, how will that affect investors that deal with Future Security Bank?  Limit your answer to issues discussed in the case.

 

QUESTION 4 OUTLINE:

If the Fed enacts Expansionary Monetary policy, how will this affect our customers/ investors at FSB? (given their specific circumstances)

-Retired individuals w long term relationships w FSB, they usually have some sort of pension/ retirement plan- affected by govt. decisions

-Pensions usually do NOT keep up with inflation (after a bolstering of the economy [expansionary], a period of recession usually follows **good opportunity to insert/reference a chart showing fluctuations])

-Stockholders, worried about corporate profitability (show how changes in the GDP affect investment), current decline in GDP= decrease in consumer spending/confidence-> less $ to companies-> less $ spent on firms investments -> leads to decreased output, innovation

**here, talk about how expansionary policy & subsequent increase in $ will HELP bolster consumer confidence, etc. 

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