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Posted 2021-09-17
Teaching the Linkage Between Banks and the Fed: R.I.P. Money Multiplier Image

Teaching the Linkage Between Banks and the Fed: R.I.P. Money Multiplier

by Jane Ihrig, Gretchen C. Weinbach, and Scott A. Wolla

The money multiplier has been a standard concept in introductory economics classes for decades, but changes in the way the Fed implements monetary policy has made the model obsolete. This article provides information about the linkages between the Fed and the banking system and provides teaching suggestions. 

Posted 2021-09-01

Neighborhood Redlining, Racial Segregation, and Homeownership

by Diego Mendez-Carbajo

Redlining was the practice of selectively classifying neighborhoods as most likely to default on repayment of a mortgage loan. Houses in redlined neighborhoods held little value as collateral, and lenders would only offer mortgage loans for these houses at above-average interest rates. Over time, these neighborhoods had the largest concentrations of African Americans. The September 2021 issue of Page One Economics® explains how residents in redlined neighborhoods could not afford to become homeowners and accumulate wealth at the rates other groups did. It also points out how only when the federal government passed laws banning discrimination in housing and banking did the segregation of African Americans to specific neighborhoods start to ease up.

Posted 2021-07-15

Inflation Expectations, the Phillips Curve, and the Fed’s Dual Mandate

by Jane Ihrig, Ekaterina Peneva, and Scott A. Wolla

This Summer 2021 issue of Page One Economics® describes how to think about stable prices, how inflation has evolved in recent years, how the relationship between inflation and employment is changing, and what the Federal Open Market Committee (FOMC) has recently stated about its strategy to meet its price stability goal.

Posted 2021-05-03

Minding the Output Gap: What Is Potential GDP and Why Does It Matter?

by Scott A. Wolla

Potential output is an estimate of what the economy could produce. Actual output is what the economy does produce. If actual is below potential—a negative output gap—there is “slack” in the economy. If actual is above potential—a positive output gap—resources are fully employed, or perhaps overutilized. This issue of Page One Economics® explains how the output gap is useful for checking the health of the economy. It also points out how errors in the estimation of potential real GDP can reduce the effectiveness of policy.

Posted 2021-04-01

The Anchoring Effect

by Andrea J. Caceres-Santamaria

Consumers often measure whether they got a good deal on a purchase by the difference between the original price and a sales price. The bigger the difference is, the better the deal feels. The original price a consumer is exposed to becomes a reference point, or an anchor. The April 2021 issue of Page One Economics® Focus on Finance explains the anchoring effect and the role it plays in the decisionmaking process when it comes to what consumers are willing to pay for a good or service.

Posted 2021-03-01

The Science of Supply and Demand

by David F. Perkis

Pandemics, hurricanes, and other scientific events can alter the course of markets. Changes in technology can, too. This issue of Page One Economics® explains the laws of supply and demand and uses graphs to show how price and quantity change when markets shift.

Posted 2021-02-01

Coping With COVID: Crises, Young People’s Housing Choices, and Preparing in Uncertainty

by Kris Bertelsen

Many of even the most prepared young people could not have anticipated the effects of the COVID-19 pandemic. Learn about some of the pandemic’s economic impacts on young people and their families and some information and tips for financial planning in the February 2021 Page One Economics®:Focus on Finance.

Posted 2021-01-04

Consumer Spending and the COVID-19 Pandemic

by Diego Mendez-Carbajo

The onset of the COVID-19 pandemic changed consumer spending habits. The January 2021 issue of Page One Economics® reviews how people substituted meals purchased at restaurants with meals cooked at home. Also, people traveled less and the demand for hotel services decreased. As a result, both employment and prices declined in the leisure and hospitality industry.