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 Group Đàm Duy Lương Đào Thị Thảo Phương Trần Nam Anh Hoàng Duy Mạnh Trần Vũ Huy I.Vocabulary Words Pronounce Meaning Reserve requirement /rɪˈzɜrv rɪˈkwaɪərmənt/ Dự trữ bắt buộc Money supply /ˈmʌni səˈplaɪ/ Lượng cung tiền Discount rate /ˈdɪskaʊnt reɪt/ Lãi suất chiết khấu Security /sɪˈkyʊərɪti/ Chứng khoán Primary market /ˈpraɪmɛri ˈmɑrkɪt/ Thị trường sơ cấp Bond /bɒnd/ Trái phiếu Aggregate demand /ˈægrɪgeɪt dɪˈmænd/ Tổng cầu Restrictive /rɪˈstrɪktɪv/ Thắt chặt 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  Thay đổi dự trữ bắt buộc By law, the Fed (the Federer Reserve System) controls the percentage Theo luật pháp, Fed (Cục dự trữ liên bang) kiểm soát phần trăm tiền of deposits banks keep in reserve by controlling the reserve gửi ngân hàng dự trữ cách kiểm soát dự trữ bắt buộc tất requirement of all US banks The percentage the Fed sets as the ngân hàng Mỹ Phần trăm mà Fed đặt mức dự trữ tối thiểu mà minimum amount of resevers as bank must have in called the reserve ngân hàng phải có gọi tỷ lệ dự trữ bắt buộc Số tiền requirements The amount banks must keep in reserve depends on the ngân hàng phải dự trữ phụ thuộc vào yêu cầu Fed phần Fed requirements and partly on how much banks feel they need for số tiền ngân hàng cảm thấy cần phải dự trữ (số tiền mặt họ cần có safety (the cash they need to keep on hand at any time to give sẵn thời điểm để trả cho người gửi, người yêu cầu depositors who claim some of their deposits in the form of cash) rút phần tiền gửi họ thành tiền mặt) II Reading A Quantitative Tools of Monetary Policy The amount of banks need for safety is much smaller than what Số tiền mà ngân hàng cần để dự trữ nhỏ nhiều so với the Fed requires For them, it’s the Fed’s reserve requirements số mà Fed yêu cầu Với họ, dự trữ bắt buộc Fed xác định that determines the amount they hold as reserves Thus, the số tiền họ phải dự trữ Vì vậy, dự trữ bắt buộc đóng vai trò reserve requirement play a central role in how much money trung tâm việc ngân hàng có tiền vay banks have to lent out By changing the reserve requirements, Bằng cách thay đổi dự trữ bắt buộc, Fed tăng giảm the Fed can increase or decrease the money supply If the Fed lượng cung tiền Nếu Fed tăng dự trữ bắt buộc, ảnh hưởng increases the reserve requirement, it contracts the money supply; đến lượng cung tiền; ngân hàng buộc phải dự trữ nhiều tiền banks have keep more reserves so they have less money to lend nên họ có tiền vay out II Reading Question 2: How does the Fed control the percentage of deposits banks keep in reserve? ⇒ 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? ⇒ 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? ⇒ 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? ⇒ 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  Thay đổi lãi suất chiết khấu A second tool of monetary policy concerns other alternative Công cụ thứ hai sách tiền tệ quan tâm đến lựa chọn banks have if they are short of reserves A bank can go to its khác ngân hàng thiếu dự trữ Một ngân hàng bank (the Fed, the banker’s bank) and take a loan The discount tìm đến Fed (ngân hàng ngân hàng) để vay tiền Lãi suất rate is the rate of interest the Fed charges for those loans An chiết khấu mức lãi suất Fed đặt cho khoản vay Việc increase in the discount rate makes it more expensive for banks tăng mức lãi suất chiết khấu làm cho chi phí vay từ Fed to borrow from the Fed A discount rate decrease makes it less ngân hàng đắt đỏ Việc giảm mức lãi suất chiết khấu làm expensive for bank to borrow Therefore changing the discount chi phí vay ngân hàng giảm Vì việc thay đổi rate is the second way the Fed can expand or contract the money lãi suất chiết khấu cách thứ mà Fed nới rộng thu supply 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  Nghiệp vụ thị trường mở Changes in discount rate and reserve requirement are not used in day-to- Thay đổi tỷ lệ chiết khấu dự trữ bắt buộc không Fed sử dụng day Fed operations They are used mainly for major changes For day- liên tục Họ sử dụng công cụ chủ yếu cho biến động lớn to-day Fed operations, the Fed used a third tool: open market operations Đối với hoạt động hàng ngày Fed, Fed sử dụng công cụ thứ ba: – the Fed’s buying and selling government securities (the only type of nghiệp vụ thị trường mở - mua bán chứng khốn phủ (Loại tài asset the Fed is allowed is allowed by law to hold in any appreciate sản Fed phát luật cho phép nắm giữ số lượng quantity) These open market operations are the primary tool of nào) Những hoạt động thị trường mở cơng cụ chủ yếu monetary policy When the Fed sells Treasury bonds, it collects back sách tiền tệ Khi Fed bán trái phiếu kho bạc, họ thu lại số chứng từ some of its IOUs, reducing banking system reserves and decreasing the nợ, giảm dự trữ bắt buộc cho hệ thống ngân hàng giảm cung tiền money supply Thus, to expand the money supply, the Fed buys bonds Như vậy, để tăng cung tiền, Fed mua trái phiếu Để giảm cung tiền, Fed To contract the money supply, the Fed sells bonds 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 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  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 Sự kiểm soát ngân hàng trung ương qua mức cung tiền chế sách tiền tệ Bằng việc tạo nhiều hay lượng tiền có sẵn, ngân hàng trung ương thay đổi tổng cầu Kết việc thay đổi làm thay đổi tiền bên ngoài, mức độ giá cả, số lượng việc làm Chúng ta thấy rõ cách mà We earlier saw how fiscal policy can help bring about the desired sách tài khóa mang đến mở rộng Được phủ expansion Were the government to increase its own spending, tăng khoản nợ tiêu, tổng cầu dịch chuyển sang phải Một aggregate demand would shift to the right A tax cut would also đợt cắt giảm thuế kích thích tổng cầu cách đưa người tiêu stimulate aggregate demand by giving consumers and business more dùng nhà kinh doanh nhiều quyền sử dụng thu nhập để chi disposable income to spend 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 sử dụng để thay đổi tổng cầu Nếu ngân hàng trung ương giảm tỷ lệ dự trữ bắt buộc, hạ lãi suất chiết khấu mua nhiều trái phiếu, làm tăng lượng vốn cho vay Ngân hàng cố gắng mở rộng nguồn vốn cho vay nhiều Bằng cách cung cấp mức lãi suất thấp dễ dàng chấp nhận, ngân hàng khuyến khích người dân mượn tiền, chi tiêu nhiều Bằng cách này, lượng cung tiền tăng kết việc làm đường cầu dịch chuyển sang phải II Reading B The central bank’s control over the supply of money Question 8: How can the central bank shift aggregate demand? ⇒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 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  Chính sách tiền tệ thắt chặt Chính sách tiền tệ có tác dụng làm hạ nhiệt kinh tế tăng trưởng 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 nóng Tổng cầu dư gây lên sức ép khả sản xuất Khi người tham gia thị trường bắt đầu tăng giá mặt hàng khan dẫn đến giá tăng Hậu lạm phát phân phối lại thu nhập (có thể khơng cơng bằng) phá vỡ dự án đầu tư chi tiêu The resulting inflation will redistribute real incomes (perhaps unfairly) and may Mục tiêu sách tiền tệ tronng tình hình giảm cầu Để làm điều disrupt investment and consumption plans đó, Ngân Hàng Trung Ương giảm cung tiền cách (1) tăng tỉ lệ dự trữ bắt The goal of monetary policy in this situation is reduce aggregate demand To 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 buộc, (2) tắng lãi suất chiết khấu, (3) phát hành trái phiếu thị trường mở Những cách làm giảm khả cho vay Ngân Hàng Thương Mại Các quý cho vay giảm dẩn tới đẩy lãi suất lên Cùng với lãi suất đẩy lên cao khả cho vay giảm dẫn đến đầu tư chi tiêu phủ bị hạn chế II Reading B The central bank’s control over the supply of money Question 10: What is the difference between expensionary monetary policy and restrictive monetary policy? Expensionary Monetary policy Restrictive Monetary policy Goal Making the economy grow Cooling the overheating economy Central bank’s action Lower reserve requirements Higher reserve requirements Drop the discount rate Increase the discount rate Buy more bonds Sell bonds II Reading B The central bank’s control over the supply of money Question 11: When will prices begin rising? ⇒ As market participants bid against each other for increasingly scare goods, prices will start rising Question 12: What can the central bank to reduce aggregate demand? ⇒ 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 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 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  ... 10: What is the difference between expensionary monetary policy and restrictive monetary policy? Expensionary Monetary policy Restrictive Monetary policy Goal Making the economy grow Cooling the... bonds 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... overheating economy III Summary  Monetary policy is a policy which controls a nation’s money supply and supervised by Central Bank  There are tools of monetary policy: – Changing the reserve requirement: