Project You have explored how the Federal Reserve carries out monetary policy. You also know that monetary policy involves the
money supply and interest rates. Now, it is time for you to see how effective (or not) monetary policy is in action.
1) You will begin by writing down the definition of "monetary policy."
2) The specific action that you will explore is expansionary monetary policy. This is when the Federal Reserve increases the
money supply. Explain how Increasing the money supply affects interest rates. Then explain how expansionary monetary
policy affects consumption, investments, and the growth of the economy,
3) Now it is time to look at a specific monetary policy. You already know about the recession that began at the end of
2007. The Federal Reserve addressed this economic downturn by carrying out expansionary monetary policy. Using the
provided document titled "Primary Rates," find the primary interest rate on November 1, 2007. The primary rate is the
interest rate available to financially sound banks. To find the primary rate on November 1, 2007. go to the "Primary Rate"
column and the row marked 01-Nov-07" in the Boston column. Write down this interest rate. Next, locate the primary rate
on October 29, 2008 (or "29-Oct-08" in the Boston column). This was the primary rate almost one year later. Write down
this rate. Examine the Interest rates in between these dates.
Click here for the "Primary Rates" spreadsheet.
4) In 1 or 2 sentences, describe the trend (or general direction) in the interest rates between November 1, 2007, and
October 29, 2008, by answering the following questions: Are the interest rates increasing or decreasing? Does the trend
indicate that the Federal Reserve is increasing or decreasing the growth of the money supply during this time?
5) Next, examine consumption, investments, and Gross Domestic Product during 2008 and 2009, using the table below.
The table shows the percentage changes in each area. The changes are shown in quarters (or four parts) for each year. For
example, the first quarter is January, February, and March.