Unit 12: MONETARY POLICY

A. Quantitative Tools of Monetary PolicyChanging the reserve requirementBy law, the Fed (the Federer Reserve System) controls the percentage ofdeposits banks keep in reserve by controlling the reserve requirement of all USbanks. The percentage the Fed sets as the minimum amount of resevers asbank must have in called the reserve requirements. The amount banks mustkeep in reserve depends on the Fed requirements and partly on how muchbanks feel they need for safety (the cash they need to keep on hand at any timeto give depositors who claim some of their deposits in the form of cash). Theamount of banks need for safety is much smaller than what the Fed requires.For them, it’s the Fed’s reserve requirements that determines the amount theyhold as reserves. Thus, the reserve requirement play a central role in howmuch money banks have to lent out. By changing the reserve requirements, theFed can increase or decrease the money supply. If the Fed increases the reserverequirement, it contracts the money supply; banks have keep more reserves sothey have less money to lend out.

UNIT 12: MONETARY POLICY

Reserve requirement /rɪˈzɜrv rɪˈkwaɪərmənt/ Dự trữ bắt buộc

Discount rate /ˈdɪskaʊnt reɪt/ Lãi suất chiết khấu

Primary market /ˈpraɪmɛri ˈmɑrkɪt/ Thị trường sơ cấp

Aggregate demand /ˈægrɪgeɪt dɪˈmænd/ Tổng cầu

II Reading

A Quantitative Tools of Monetary Policy

 Changing the reserve requirement

By law, the Fed (the Federer Reserve System) controls the percentage of

deposits banks keep in reserve by controlling the reserve requirement of all

US banks The percentage the Fed sets as the minimum amount of resevers as bank must have in called the reserve requirements The amount banks must keep in reserve depends on the Fed requirements and partly on how much

banks feel they need for safety (the cash they need to keep on hand at any time

to give depositors who claim some of their deposits in the form of cash) The amount of banks need for safety is much smaller than what the Fed requires For them, it’s the Fed’s reserve requirements that determines the amount they hold as reserves Thus, the reserve requirement play a central role in how

much money banks have to lent out By changing the reserve requirements, the Fed can increase or decrease the money supply If the Fed increases the reserve requirement, it contracts the money supply; banks have keep more

reserves so they have less money to lend out

II Reading

A Quantitative Tools of Monetary Policy

 Changing the reserve requirement

By law, the Fed (the Federer Reserve

System) controls the percentage of

deposits banks keep in reserve by

controlling the reserve requirement of all

US banks The percentage the Fed sets

as the minimum amount of resevers as

bank must have in called the reserve

requirements The amount banks must

keep in reserve depends on the Fed

requirements and partly on how much

banks feel they need for safety (the cash

they need to keep on hand at any time to

give depositors who claim some of their

deposits in the form of cash)

 Thay đổi dự trữ bắt buộc

Theo luật pháp, Fed (Cục dự trữ liên bang) kiểm soát phần trăm tiền gửi ngân hàng dự trữ bằng cách kiểm soát dự trữ bắt buộc ở tất cả các ngân hàng Mỹ

Phần trăm mà Fed đặt ra là mức dự trữ tối thiểu mà các ngân hàng phải có được gọi là tỷ lệ dự trữ bắt buộc Số tiền các ngân hàng phải dự trữ phụ thuộc vào yêu cầu của Fed và một phần là số tiền các ngân hàng cảm thấy cần phải dự trữ (số tiền mặt họ cần có sẵn bất cứ thời điểm nào để trả cho người gửi, những người yêu cầu rút một phần tiền gửi của

họ thành tiền mặt)

II Reading

A Quantitative Tools of Monetary Policy

The amount of banks need for safety

is much smaller than what the Fed

requires For them, it’s the Fed’s

reserve requirements that determines

the amount they hold as reserves

Thus, the reserve requirement play a

central role in how much money

banks have to lent out By changing

the reserve requirements, the Fed can

increase or decrease the money

supply If the Fed increases the

reserve requirement, it contracts the

money supply; banks have keep more

reserves so they have less money to

lend out

Số tiền mà các ngân hàng cần để dự trữ nhỏ hơn rất nhiều so với con số

mà Fed yêu cầu Với họ, dự trữ bắt buộc của Fed xác định số tiền họ phải dự trữ Vì vậy, dự trữ bắt buộc đóng một vai trò trung tâm trong việc các ngân hàng có bao nhiêu tiền để cho vay Bằng cách thay đổi dự trữ bắt buộc, Fed có thể tăng hoặc giảm lượng cung tiền Nếu Fed tăng dự trữ bắt buộc, nó sẽ ảnh hưởng đến lượng cung tiền; các ngân hàng buộc phải

dự trữ nhiều tiền hơn nên họ sẽ có ít tiền hơn để cho vay

II Reading

Question 2: How does the Fed control the percentage of deposits banks keep in reserve?

Þ The Fed controls the percentage of deposits banks in reserve

by controlling the reserve requirement of all US banks.

Question 3: What is called reserve requirement?

Þ Reserve requirement is the percentage the Fed sets as the

minimum amount of reserves as bank must have.

Question 4: What determines the amount banks hold as reserves?

Þ The Fed’s reserve requirement determines the amount banks hold as reserves.

Question 5: What is the central role of the reserve requirements?

=> The reserve requirements play a central role in how much

money banks have to lend out.

II Reading

A Quantitative Tools of Monetary Policy

 Changing the Discount rate

A second tool of monetary policy concerns other alternative banks

have if they are short of reserves A bank can go to its bank (the

Fed, the banker’s bank) and take a loan The discount rate is the

rate of interest the Fed charges for those loans An increase in the discount rate makes it more expensive for banks to borrow from the Fed A discount rate decrease makes it less expensive for bank to borrow Therefore changing the discount rate is the second way the Fed can expand or contract the money supply.

II Reading

A Quantitative Tools of Monetary Policy

Question 6: What is the second tool of monetary policy?

Þ Changing the Discount rate.

Question 7: What is the discount rate?

=> The discount rate is the rate of interest the Fed

charges for those loans.

II Reading

A Quantitative Tools of Monetary Policy

 Changing the Discount rate

A second tool of monetary policy

concerns other alternative banks have

if they are short of reserves A bank

can go to its bank (the Fed, the

banker’s bank) and take a loan The

discount rate is the rate of interest the

Fed charges for those loans An

increase in the discount rate makes it

more expensive for banks to borrow

from the Fed A discount rate

decrease makes it less expensive for

bank to borrow Therefore changing

the discount rate is the second way

the Fed can expand or contract the

money supply

 Thay đổi lãi suất chiết khấu

Công cụ thứ hai của chính sách tiền

tệ quan tâm đến lựa chọn khác của các ngân hàng khi thiếu dự trữ Một ngân hàng có thể tìm đến Fed (ngân hàng của các ngân hàng) để vay tiền Lãi suất chiết khấu là mức lãi suất Fed đặt ra cho các khoản vay Việc tăng mức lãi suất chiết khấu làm cho chi phí đi vay từ Fed của các ngân hàng đắt đỏ hơn Việc giảm mức lãi suất chiết khấu làm chi phí đi vay của các ngân hàng giảm đi Vì vậy việc thay đổi lãi suất chiết khấu là cách thứ 2 mà Fed có thể nới rộng hoặc thu hẹp lượng cung tiền

II Reading

A Quantitative Tools of Monetary Policy

 Open market operations

Changes in discount rate and reserve requirement are not used in

day-to-day Fed operations They are used mainly for major

changes For day-to-day Fed operations , the Fed used a third tool:

open market operations – the Fed’s buying and selling

government securities (the only type of asset the Fed is allowed

by law to hold in any appreciate quantity) These open market

operations are the primary tool of monetary policy When the Fed

sells Treasury bonds , it collects back some of its IOUs , reducing banking system reserves and decreasing the money supply Thus,

to expand the money supply , the Fed buys bonds To contract the

money supply , the Fed sells bonds

II Reading

A Quantitative Tools of Monetary Policy

 Open market operations

Changes in discount rate and reserve

requirement are not used in day-to-day

Fed operations They are used mainly for

major changes For day-to-day Fed

operations , the Fed used a third tool:

open market operations – the Fed’s

buying and selling government securities

(the only type of asset the Fed is allowed

is allowed by law to hold in any

appreciate quantity) These open market

operations are the primary tool of

monetary policy When the Fed sells

Treasury bonds , it collects back some of

its IOUs , reducing banking system

reserves and decreasing the money

supply Thus, to expand the money

supply , the Fed buys bonds To contract

the money supply , the Fed sells bonds

phiếu Để giảm cung tiền, Fed bán trái phiếu

II Reading

A Quantitative Tools of Monetary Policy

Question 1: What is the monetary policy?

=> Monetary policy is a policy which controls a

nation’s money supply and supervised by Central Bank.

 Expansionary monetary policy

Monetary policy may be used to shift aggregate demand as well If the central bank lowers reserve requirements, drops the discount (bank) rate, or buy more bond, it will increase bank lending capacity The banks in turn will try to use

that expanded capacity and make more loans By offering lower interest rates

or easier approvals, the banks can encourage people to borrow and spend more money In this way, an increase in the money supply will result in a rightward shift of the aggregate demand curve

II Reading

B The central bank’s control over the supply of

money

The central bank’s control over the

supply of money is the key mechanism

of monetary policy By making more or

less money available , the central bank

can shift aggregate demand The

resulting shifts can alter the rate of

output, the price level, and the number

of availble jobs.

We earlier saw how fiscal policy can

help bring about the desired expansion

Were the government to increase its own

spending, aggregate demand would shift

to the right A tax cut would also

stimulate aggregate demand by giving

consumers and business more disposable

income to spend.

Sự kiểm soát của ngân hàng trung ương qua mức cung tiền là cơ chế chính của chính sách tiền tệ Bằng việc tạo ra nhiều hay ít hơn lượng tiền có sẵn, ngân hàng trung ương có thể thay đổi tổng cầu Kết quả của việc thay đổi

có thể làm thay đổi tiền ra bên ngoài, mức độ giá cả, số lượng việc làm

Chúng ta có thể thấy rõ hơn cách mà chính sách tài khóa có thể mang đến sự

mở rộng Được chính phủ tăng các khoản nợ chỉ tiêu, tổng cầu sẽ dịch chuyển sang phải Một đợt cắt giảm thuế sẽ kích thích tổng cầu bằng cách đưa người tiêu dùng và nhà kinh doanh nhiều hơn quyền sử dụng thu nhập để chi tiêu.

II Reading

B The central bank’s control over the supply of

money

 Expansionary monetary policy

Monetary policy may be used to shift

aggregate demand as well If the central

bank lowers reserve requirements, drops

the discount (bank) rate, or buy more

bond , it will increase bank lending

capacity The banks in turn will try to

use that expanded capacity and make

more loans By offering lower interest

rates or easier approvals, the banks can

encourage people to borrow and spend

more money In this way, an increase in

the money supply will result in a

rightward shift of the aggregate demand

curve.

 Chính sách tiền tệ mở rộng

Chính sách tiền tệ có thể được sử dụng để thay đổi tổng cầu Nếu ngân hàng trung ương giảm tỷ lệ dự trữ bắt buộc, hạ lãi suất chiết khấu hoặc mua nhiều trái phiếu,

nó sẽ làm tăng lượng vốn cho vay Ngân hàng sẽ cố gắng mở rộng nguồn vốn và cho vay nhiều hơn Bằng cách cung cấp mức lãi suất thấp hơn hoặc dễ dàng chấp nhận, ngân hàng có thể khuyến khích người dân mượn tiền, và chi tiêu nhiều hơn Bằng cách này, lượng cung tiền tăng

sẽ là kết quả trong việc làm đường cầu dịch chuyển sang phải.

Þ Central bank shifts aggregate demand by making

more or less money available?

Question 9: How can the banks encourage people to borrow and spend more money?

=> By offering lower interest rates or easier approvals, the banks can encourage people to borrow and spend more money.

II Reading

B The central bank’s control over the supply of

money

 Restrictive monetary policy

Monetary policy may be used to cool an overheating economy Excessive

aggregate demand may put too much pressure on our production capacity As market participaint bid against each other for increasingly scarce goods, prices will start rising

The resulting inflation will redistribute real incomes (perhaps unfairly) and

may dirupt investment and consumption plans

The goal of monetary policy in this situation is reduce aggregate demand To

do this, the central bank can reduce the money supply by (1) raising reserve requirements, (2) increasing the discount rate, or (3) selling bonds in the open market All of these actions will reduce bank lending capacity The

combination of higher interest rates and lessened loan availability will curtail investment consumoption, and even government expenditure

II Reading

B The central bank’s control over the supply of

money

 Restrictive monetary policy

Monetary policy may be used to cool an

overheating economy Excessive aggregate

demand may put too much pressure on our

production capacity As market participaint bid

against each other for increasingly scarce

goods, prices will start rising.

The resulting inflation will redistribute real

incomes (perhaps unfairly) and may disrupt

investment and consumption plans.

The goal of monetary policy in this situation is

reduce aggregate demand To do this, the

central bank can reduce the money supply by

(1) raising reserve requirements , (2) increasing

the discount rate , or (3) selling bonds in the

open market All of these actions will reduce

bank lending capacity The combination of

higher interest rates and lessened loan

availability will curtail investment

consumoption, and even government

expenditure.

 Chính sách tiền tệ thắt chặt

Chính sách tiền tệ cũng có tác dụng làm hạ nhiệt nền kinh tế đang tăng trưởng quá nóng Tổng cầu dư gây lên sức ép đối với khả năng sản xuất Khi người tham gia thị trường bắt đầu tăng giá các mặt hàng khan hiếm thì sẽ dẫn đến giá cả tăng.

Hậu quả lạm phát sẽ phân phối lại thu nhập chính (có thể không công bằng) và phá vỡ các

dự án đầu tư và chi tiêu.

Mục tiêu của chính sách tiền tệ tronng tình hình này là giảm cầu Để làm được điều đó, Ngân Hàng Trung Ương có thể giảm cung tiền bằng cách (1) tăng tỉ lệ dự trữ bắt buộc, (2) tắng lãi suất chiết khấu, hoặc (3) phát hành trái phiếu trên thị trường mở Những cách trên sẽ làm giảm

đi khả năng cho vay của các Ngân Hàng Thương Mại Các quý cho vay giảm sẽ dẩn tới đẩy lãi suất lên Cùng với lãi suất được đẩy lên cao hơn

và khả năng cho vay giảm đi sẽ dẫn đến đầu tư

và chi tiêu chính phủ sẽ bị hạn chế.

Goal Making the economy grow Cooling the overheating

economy

Central

bank’s action Lower reserve requirementsDrop the discount rate

Buy more bonds

Higher reserve requirements Increase the discount rate Sell bonds

II Reading

B The central bank’s control over the supply of

money

Question 11: When will prices begin rising?

Þ As market participants bid against each other for increasingly scare goods, prices will start rising.

Question 12: What can the central bank do to reduce aggregate demand?

Þ The central bank can readuce the money supply by raising reserve requirements, increasing the discount rate, or selling bonds in the open market.

Question 13: When might the central bank want to reduce the money supply?

=>The central bank want to reduce to the money supply in case

of an overheating economy.

III Summary

 Monetary policy is a policy which controls a nation’s money supply and supervised by Central Bank.

 There are 3 tools of monetary policy:

– Changing the reserve requirement: is the percentage the Fed sets as the minimum amount

of reserves as bank must have By changing the reserve requirements, the Fed can

increase or decrease the money supply

– Changing the discount rate: rate is the rate of interest the Fed charges for those loans An increase in the discount rate makes it more expensive for banks to borrow from the Fed

A discount rate decrease makes it less expensive for bank to borrow

– Open market operations: the Fed’s buying and selling government securities To expand the money supply, the Fed buys bonds To contract the money supply, the Fed sells

bonds.

 There are 2 types of monetary policy

– Expensionary monetary policy: If the central bank lowers reserve requirements, drops the discount (bank) rate, or buy more bond, the money supply will result in a rightward shift

of the aggregate demand curve.

– Restrictive monetary policy: If the central bank raises reserve requirements, increases the discount rate, or sells bonds in the open market The central bank will reduce to the

money supply in case of an overheating economy.