chapter 11 lecture notes

more bank reserves = decreased federal fund interest rate bc it’s cheaper for banks to borrow from each other

expansionary always generally causes yields on bonds to decrease + can have an effect on other interest rates in the economy

expansionary = reduces inemployment but causes more inflation (opposite for contrantionary)

if the FOMC decides to increase the federal funds rate, it can sell bonds on the open market (contractionary policy = trying to get interest rates to go up)fed sells bonds = bonds pries increases +

contractionary OMO = reserves increase, treasury bond prices decrease, treasury bond yields decrease

expansionary OMO = reserves increase, treasury bond prices increases, treasury bond yields decrease

increase in the IOR (interest on reserves) = banks would lend less (+ hold more reserves), bank interest rates to lenders would increase, interest rats paid to depositors would increase, investment/consumer spending would decrease