Econ 101

Bob Morris bobmorris at mediaone.net
Wed Mar 28 15:42:37 PST 2001


Ok, I'll admit it, I don't really know exactly how the Fed guides the economy.

The want to stimulate the economy, so they drop rates. This means loans cost less so people are more likely to take a loan and build a factory or whatever. This I understand. However, doesn't the Fed also control how much money is in circulation by buying or selling bonds? How does this work? They bid high on t-bills, thus drawing money from banks? Why do the banks have to sell? And wouldn't they have to pull huge amounts in to make any difference?



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