Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow. more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest. rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts?

Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow. more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest. rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If life expectancy rises because people begin to eat food containing fewer preservatives and chemicals, we would expect Demand for funds to decrease Supply of funds to increase ON Demand for funds to increase Supply of funds to decrease
From the end of 2009 to the end of 2019, the size of the United States National Debt held by the public grew from $6.8 trillion to $17.2 trillion, which meant that the supply of government bonds rose substantially over the period. During the same period, however, the 10 year US Treasury Bond yield to maturity fell from 3.59% in December 2009 to 1.86% in December of 2019. Explain how such an increase in the supply of government bonds can lead to a fall in the interest rate
What was the actual federal funds rate set by the Fed in 2021? Was monetary policy expansionary or contractionary? Briefly explain.
A recent newspaper article discussed the implications of investors' fears of a larger-than-expected budget deficit in Italy. In one well-labeled graph of the bond market for Italy, show how the following items respond and provide an intuitive explanation for each. bond demand bond supply equilibrium price equilibrium interest rate
Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest rates were to fall by one percentage point? You should report your answers in terms of the change in profit per $100 in assets.
When the Federal Reserve buys bonds, it effectively lowers the nominal interest rate in the market. true false
Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by ______the ________. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is__________money in the financial system, there is an excess _________ money at the initial equilibrium interest rate. Individuals and businesses adjust their asset portfolios by _______bonds. As a result, the price of bonds_________ , and the interest rate______ . This process continues until the new equilibrium interest rate is achieved.
Briefly describe what will happen to the Federal Reserve Bank's balance sheet after each of the following cases. (Clearly specify (A) which part(s) of the balance sheet (assets or liabilities) will be affected, and (B) it will increase or decrease that part(s) of the balance sheet.) 1. The Federal Reserve conducts an open market purchase of $100 million of U.S. Treasury securities. 2. A commercial bank borrows $100 million from the Federal Reserve. 3. The amount of cash in the vaults of commercial banks falls by $100 million due to withdrawals by the public.
what happens to interest rates and short run real GDP when the federal funds rate increases?
Use the following information to answer the next question. Security Treasury bills Corporate bonds Treasury notes Corporate stock Amount (in billions) $220 140 80 200 60 100 U.S. savings bonds Treasury bonds The public debt for the economy is
A news website might have this headline: “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent.” A more detailed account of the Fed’s action would say: “Today the Fed told its bond traders to sell enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” “Today the Fed told its bond traders to buy enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.”
(Problem 3, Page 439) Suppose that the Fed has a policy of increasing the money supply when it observes that the economy is in recession. However, suppose that about six months are needed for an increase in the money supply to affect aggregate demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the Fed's policy have on output and price stability? Does your answer change if (a) the Fed has some ability to forecast recessions or (b) price adjustment takes longer than six months?