Suppose a new Congress and administration overrule the independence of the Federal Reserve System and force the Fed to greatly expand the money supply. What effect will this have? On the level and slope of the yield curve immediately after the announcement? On the level and slope of the yield curve that would exist two to three years in the future?
Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
Suppose a new Congress and administration overrule the independence of the Federal Reserve System and force the Fed to greatly expand the money supply. What effect will this have?
- On the level and slope of the yield curve immediately after the announcement?
- On the level and slope of the yield curve that would exist two to three years in the future?
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