"Econ 102" with Noah Smith and Erik Torenberg cover image

Controlling US Inflation, Global Trade, and the Future of India and Japan

"Econ 102" with Noah Smith and Erik Torenberg

00:00

Understanding the Mechanism of the Fed's Balance Sheet

The Federal Reserve prints money to buy bonds from banks, adding these bonds to its balance sheet. The bonds generate interest payments from the government to the Fed, but when the Fed has excess money, it returns it to the government. This circular flow of money between the Fed and the government makes the size of the Fed's balance sheet less concerning and serves as a way to evaluate monetary policy when interest rates are low.

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