AB 204 Unit 7 Money, Banking, and the Federal Reserve System – Discussion

AB 204 Unit 7: Money, Banking, and the Federal Reserve System – Discussion

General Information:

To be an effective learning tool the Discussion Board topics require your active discussion of the topic with at least two of your classmates.

First post made during, or before, Saturday.

Posts on at least 3 different days.

Responses to at least two other classmates.

Substantive posts that stimulate further active discussion, posts that accurately reflects the learning, that are logical, and clearly presented with correct spelling, word usage, and grammar.

To be counted as a substantial post, your main post to the Discussion topics should be at least 200 words per Discussion topic.

How Money Affects the Economy

The Discussion topics deal with money, the Federal Reserve System, and the effects of money growth on the rate of inflation. The specific discussion areas include the various forms and uses of money, the roles of the Federal Reserve System, money supply, money demand, monetary policy instruments, costs of inflation, and inflation as a tax.

Read Chapters 16 and 17, and remember to include references and links to the websites that you feel are important contributors to your posts (comments). Respond to two of the following Discussion topics.

Unit 7 Discussion


The Federal Reserve’s three instruments of monetary policy are:
– open market operations: the buying and selling of U.S. Treasury and federal agency securities in the open market;
– discount rate to depository institutions directly from their Federal Reserve Bank’s discount rate, at rates set by the Reserve Banks and approved by the Board of Governors;
– reserve requirements: the amount of reserves that depository institutions must hold as a percentage of their transaction deposits.


Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply.  
Expansionary monetary policy is when the Federal Reserve is using its tools to stimulate the economy.

Expansionary monetary policy increases the supply of money, whereas contractionary monetary policy contracts decreases the supply of a country’s currency. Contractionary monetary policy has the effect of reducing inflation by reducing upward pressure on price levels.  Expansionary monetary policy spurs economic growth lowering the interest rates, which lowers the cost of financing capital projects.  Expansionary policy will also help households who are in debt, by lowering the interest rate they pay. It also inspires them to buy because often purchases are made on credit. Contractionary monetary policy is the opposite of an expansionary monetary policy. By selling bonds, raising the discount rate, or increasing reserve requirements, the Fed causes interest rates to rise, either directly or through the increase in the supply of bonds on the open market through sales by the Fed or by banks.

Mankiw, N. G. (2015). Principles of Macroeconomics, 7th Edition. [Kaplan]. Retrieved from 


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