How are the interest rates for the lending and borrowing markets determined? O by altering the discount rate Othrough open market operations OU.S. Treasury Department Board policy by the forces of supply and demand
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- estimated that banks would be wi g w. $1 25 per transaction, while noncustomers would attempt to conduct 19 mimon uans- $1.25 actions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute trav- eling to another machine to withdraw cash. Based on this information, use a graph to carefully illustrate the impact of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions. (LO3, LO4) 19. Rapel Valley in Chile is renowned for its ability to produce high-quality wine at a frac- tion of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States. Each bottle entering the United States is subjected to a $0.50 per bottle excise tax, which generates about $2.5 million in tax revenues. Strong La Niña weather patterns have caused unušually…Question Compare the functions of the Federal Reserve district banks with those for the Board of Governors. O a Ob O c Od O a Ob The Federal Reserve district banks direct monetary policy and overlook the banking industry while the Board of Governors Implement the policies from the district banks. The Federal Reserve district banks set the target federal funds rate and oversee open market operations while the Board of Governors direct monetary policy and set reserve requirements on banks. Question How do the instances when expansionary fiscal policy should be used compare with those for contractionary fiscal policy? Od The Board of Governors set the discount rate and reserve requirements on banks while the Federal Reserve district banks overlook the banking industry and implement the policies from the Board of Governors. The Board of Governors set the target federal funds rate and overlook the banking industry while the Federal Reserve district banks implement the policies from the…List and describe thefactors that affectthe money marketand the equilibriuminterest rate
- 13. of the associated Market of the between with the the Open For in problem, In which WORK IT OUT ABO e ag visit LounchPod by using the URL on the back cover of this be 13. Because of the economic slowdown associated September 18, 2007, and December 16, 2008, lowered the federal funds rate in a series of steps from a high of 5.25% to a rate between zero and 0.25%. The idea was to provide a boost to the economy by increasing aggregate demand. a. Use the liquidity preference model to explain how the Federal Open Market Committee lowers the interest rate in the short run. Draw a typical graph that illustrates the mechanism. Label the vertical axis "Interest rate" and the horizontal axis “Quantity of money." Your graph should show two interest rates, r¡ and r2. b. Explain why the reduction in the interest rate causes aggregate demand to increase in the shor run. c. Suppose that in 2015 the economy is at potential output but that this is somehow overlooked by the Fed, which continues its…If the government imposed a federal interest rate ceiling of 20 on all loans, who would gain and who would lose?QUESTION 12 The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. O True O False QUESTION 13 What happened to the discount rate in January 2003 and why? Read this article from the Federal Reserve to find the answer. The discount rate moved below the fed funds rate because fewer banks wanted to borrow from the Fed anymore The discouunt rate became equal to the fed funds rate because the bank lending programs were merged into one The discount rate moved above the fed funds rate so any sound financial institution could borrow from the Fed and to eliminate the perception banks were being subsidized O All of the above None of the above QUESTION 14 What is the most important change in the fed funds rate since the Financial Crisis began in 2007? O it is much lower and has been essentially zero percent (0%) most of the time O It has become much more variable (ups and downs) O It no longer increases shortly before a recession (gray shaded…
- Which of these statements are true? The discount rate is normally equal to the federal funds rate. The federal funds ratre is normall higher than the discount rate. The Federal Funds rate is the rate that banks are charged when they borrow from the Fed. O The discount rate is normally higher than the federal funds rate.Predict what will happen to interest rates on a corporation’s bonds if the federal government guaranteestoday that it will pay creditors if the corporation goesbankrupt in the future. What will happen to the interestrates on Treasury securities?Consider the following table: Interest rate % Asset demand for Money supply $460 460 220 460 220 460 220 460 The transactions demand for money in this money market would graph as a: 2 4 6 8 Transaction demand for money 10 vertical line $220 220 horizontal line money $300 280 260 240 220 Oline sloping downward and to the right single point line sloping upward and to the right
- Nobel Prize winner Franco Modigliani found that themost important transmission mechanisms of monetarypolicy involve consumer expenditure. Describe how atleast two of these mechanisms workTable shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 1004. Using the same demand curve and supply curve information from question 4, for one-year GASCOHER ‘bonds with a face value of $1.000 B BY: Price = Quantity + 400 Suppose that, a3 a result of monetary policy actions, the Federal Reserve reduces the bonds by 40. Assume that bond demand is constant a How does the Federal Reserve policy affect the bond supply equation? b, Calculate the effect of the Federal Reserve's action on the equilibrium quantity, price and interest rate in this market
