Effects of Governmental Policies

What this video covers

• How open market operations work as the Federal Reserve's key day-to-day tool, and why buying securities is easing (rates down, futures prices up) while selling is tightening (rates up, futures prices down)
• What the discount rate is in monetary policy: the rate the Fed charges banks, distinct from the time-value-of-money discount rate used to discount future cash flows
• How reserve requirements force banks to hold back cash, and why raising them tightens while lowering them eases
• Why tightening always pushes rates up and interest-rate futures prices down, while easing does the reverse, through the rates-and-futures-prices seesaw
• What fiscal policy is (taxing and spending) and why it moves rates indirectly through government borrowing and economic growth rather than directly
• How heavy government borrowing from large deficits adds demand for funds, lifts rates, and therefore slams interest-rate futures prices down
• The exam trap of identifying the correct actor: Federal Reserve means direct monetary policy, while taxes, spending, or deficits mean indirect fiscal policy