Original subtitles

going to be getting more in detail into the bond market

going to be getting into soon as well but anyways guys take

bit difficult to grasp at first. Hence why I always

are reserve requirements set by the Fed. As a result reserve

levels affect the interest rate banks charge customers which

from the reserve itself so from the Fed and of course this

actually wants this to happen because they want more banks to

The rest of the 90% of the money is traded and loaned to

thing you must understand and not sure if many of you know

time. So the amount of money the amount of bank reserves

obviously influencing inflation. Now this might be a

influences the entire country's willingliness to spend

this but that banks actually loan money from themselves to

another bank and of course vice versa. They usually the Fed

controls how much they have to keep it in the bank at the

Second way is they set interest rates and the third way is they

essentially it's just in three simple ways they buy bonds.

of money actually live with them and the Fed actually

So that's just you can say the local you know reserve bank the

district federal reserve banks to maintain there require there

recommend to do some further reading on this. But

the bank and everyone at that day wanted to you know withdraw

course if you went to a bank and you had a million pounds in

the economy can flow as it should. But any of these guys

always refer back to this monetary policies as perhaps

especially the reserve requirements that we're called

fundamentals that you must understand so yeah we're

one of the most important things in in macroeconomic

way in which they transfer money bank to bank. Um so of

be trading with each other rather than getting their money

could be 10% and obviously it fluctuates from time to time.

rate it's called and then other ones would have higher rates.

keeps economic stimulation between them all and of course

it's linked to something called the Fed's fund rate which we're

other banks through the district federal reserve banks.

all of their money the banks have to have a certain amount

of money they must have on hand for customers. For example this

establish reserve requirements for the banks. Because One

they loan out or borrow from FRBs which we just said

The third way is through establishing reserve

affects a short term interest rates because of the amount

requirements. So basically it's telling banks what requirement

So this is the second way in which monetary policies work.

what that is is banks they lend money to each other overnight

banks with better credit ratings. A cheaper discount

This has an effect on the so-called discount rate. Now

because they've got to keep certain reserves in in their

banks. And certain like the Fed for example they would give

explain this further as as banks as the central bank

increase or the Fed increases or decreases interest rates.

through treasury bonds the second way is through certain

Banks with worse reputations borrow at higher rates. So to

that the Fed actually controls their bond purchases is they go

interest on that so imagine if you have 100, 000 and the the

to securities dealers they're called and it's an it's the

interest rates or the discount rate. Now banks with good

by the Fed purchasing treasuries from securities

purchases the bonds from them so that they would repay that

the open market operations. So that increases money supplied

dealers. So the way that works is we're going to get into

other investors around the world and the Fed actually

first one is in buying and and selling treasury bonds through

bonds very soon as well. But as a precursor to that the way

credit ratings pay an overnight loan called the discount rate.

loan in the future and that's how they increase money supply

higher interest rate interest rates promote people to keep

market is at the moment this is probably your best bet hence

paid.

why people usually are encouraged to keep cash in

expansionary what happens during contractionary so in

So in what ways are monetary policies sort of active? So the

attractive as before because it's too much interest to be

prevents spending on the economy and loans are not as

open market so it could be you could be you know loads of

bank is offering you let's just say 2% on that a year now it

might seem it might seem low but compared to how risky the

their cash and store it in the banks because they gain an

there with themselves and of course money in the banks it

the risk on and risk off environment what happens during

the time where not many people are spending not many people

have jobs at the time contractionary times is usually

before so of course you can expect less people to actually

are investing and this is where you've got to start thinking of

increases. Now contractionary policies this it slows the

activity and of course as a result of this inflation

growth of the economy and reduces economic activity. So

there's higher unemployment businesses aren't as active as

what you you can expect I put so less yeah so less employment

spending going on, lots of loans, too much business

supply is very high in the economy. There's a lot of

there's too much inflation because money supplies M2 money

post all of the recession and the slowdown and it's when the

economy is starting to get back to how it was. There's too

they keep close to zero percent. Now in terms of

borrowing, obviously investment and then consumer spending and

the way they do this is mainly through interest rates which

very low as well. Unemployment is high. So now increase in

is you know very slow they they need things to pick up. GDP is

supply, money supplies increased to boost the

slowdown. Expansionary expands the economy, increase in

are inputted into the system during a recession or a

economic activity. So what can you expect during a recession

and then you've got contractionary so the first one

or a slowdown as we know from the economic cycle. Everything

reference to taxes and obviously that affects the

differentiate before we get in fiscal policies is mainly in

inside the economy so to truly break down monetary policies

contractionary it's a time of very high inflation. So this is

What it is is during expansionary monetary policies

you've got two types you've got expansionary monetary policies

borrowing and spending of the economy and all the consumers

there's going to be a video next for that but just to

such as their bond system as well and their asset purchases

the first set of videos. Um it's essential banks that

but that's all something that we'll get into soon. Um in

actually drive are the drivers of the economy and they're

percent. Now it's as we know from our first introduction in

policies and there's fiscal policies fiscal policies

decrease interest rates and that's what you call monetary

policies. There's a few other parts to it as well such as

terms of policies there's two main types there's monetary

they're the guys that you know increase interest rates,

just talked about is to keep a steady economy with a two%

inflation target and unemployment below five

supply and achieve macroeconomic goals that

So everyone, welcome to the next video. So in this one

undertaken by a nation's central bank to control money

So what are monetary policies? They refer to the actions

we're going to be looking at monetary policies.

promote sustainable economic growth. So the goal that we've

care and I'll see you in the next video.