In this newsletter, we use graphs to visualize the relationship between the monetary base and the consumer price index, map the population and commercial banks in U.S. Federal Reserve Districts, share some tips for playing FREDcast, and quiz you on the tools of monetary policy.
Focus on the Monetary Base
This assignment provides instructions on building the graph below and includes suggested writing prompts for out-of-class assignments.
Using GeoFRED to Compare Federal Reserve Districts
This assignment provides instructions on creating the population and commercial banks maps below and suggests prompts for in-class discussion. See how you do on our sample discussion questions below.
Resident Population by Federal Reserve District
Click on the map above to view an interactive version.
Question: Name the largest and the smallest Federal Reserve Districts in terms of resident population.
Commercial Banks by State
Again, click on the map above to view an interactive version.
Question: How many commercial banks are in Texas and New Mexico combined? What Federal Reserve District includes those two states?
Learning about Monetary Policy to Forecast Economic Activity
Monetary policy is informed by economic activity. In September 2019, weaker demand for U.S. exports and low inflation resulted in a decrease in interest rates. Read on for more details and a list of resources to become a better FREDcast forecaster.
FOMC Headline:
According to the Federal Open Market Committee, “Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate.”
Release Highlight:
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment […] The Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent.”
https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm
Resources to become a better FREDcaster
- FRED® Blog: “The Fed’s recent open market operations“
- Economic Synopses: “Okun’s Law: A Meaningful Guide for Monetary Policy?”
- Economic Synopses: “Monetary Policy and the Output Gap“
- Page One Economics®: “A New Frontier: Monetary Policy with Ample Reserves“
Quiz Yourself on the Different Elements of Monetary Policy
Q1. How did the rates of change of the Brazilian money supply and the consumer price index change in the early and mid-1990s?
Q2. Based on the information contained in the graph, how do changes in the growth rate of the money supply impact consumer price inflation?
Q1. How did the size of M1 and the velocity of M1 change between 2001 and 2008? Did both increase, decrease, or remain constant?
Q2. How did the size of M1 and the velocity of M1 change after 2008? Did both increase, decrease, or remain constant?
Q3. According to the quantity theory of money, how would the general price level change if the money supply increased and its velocity decreased?
One of the functions of the Federal Reserve System is to be the “fiscal agent” of the U.S. Treasury. That involves making payments on its behalf and receiving its receipts.
Q1. Consider the Treasury’s general account balance at the Fed since 1990. How has it changed?
Beginning in October 2008, the U.S. Treasury assisted the Federal Reserve System in responding to the 2008-09 Financial Crisis by issuing additional short-term debt through the Supplementary Financing Program.
Q2. How would the Treasury’s role in fighting the Financial Crisis show up in its general account balance at the Fed?
Now that you’ve aced this quiz, give it to your students using this dashboard. To customize this dashboard, just click the “Save to My Account” button at the top of the dashboard.
