Federal Open Market Committee use of Monetary Policy to influence the American economy

Third Assignment

MPA Economic Analysis for Policy Makers

It is not unusual to hear that the “Fed” met and decided to either “raise

interest rates,” or “lower interest rates.” In this assignment you are looking at the

actions of the Federal Open Market Committee (FOMC) and how they try to use

what is called Monetary Policy to influence the American economy: Either to

stimulate the economy by lowering interest rates or putting the brakes on the

economy to control for inflation by raising interest rates. The FOMC meets eight

times a year. It is really more complicated than what I just wrote but you need to

start somewhere.

Basically when you look at the actions of the Federal government to address

problems in the economy we are dealing with either Fiscal Policy (government

taxing and spending—which was addressed in your first two assignments) or

Monetary Policy (the actions of the Federal Reserve Board, or more specifically the

FOMC). There is more to the Federal Reserve than that, but, again, you need to

start somewhere.

In this assignment I have you addressing how you see interest rates—

specifically the Federal Funds rate, which is the interest rate the FOMC is raising or

lowering, or holding the line on. You want to, in your essay address the following:

1) Show you understand the Federal Funds rate and its relationship (or

questionable relationship) to other interest rates that often matter to you (such as

mortgage interest rates).

2) I have you reading about housing and economic development so as you go

through these readings, you can see the importance of housing to the economy

(particularly job creation). As a result of looking at this issue, can you see it tied to

the actions of the FOMC on what they are doing or trying to do to, say, stimulate

the economy?

3) You need to use Excel to do Correlation (explained in the piece on using Excel to

get Correlation). One of your readings is really just data on the target Federal Funds

rate and home sales. Use that data to get your Correlation number in Excel.

GUIDELINES FOR THIS ASSIGNMENT

address the minutes of an FOMC meeting I included in the readings. After

every meeting, sometime later the minutes of those meetings are released.