Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 13, Problem 11QP
To determine
Federal funds rate and open market operations.
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Students have asked these similar questions
List three main tools available to the Fed to change money supply in the economy.
If the Fed wanted to decrease money supply in the economy, would the Fed buy or sell securities in the open market?
Which of the following is true?
The width of the federal funds target range is 50 basis points.
If reserves are scarce (as was the case prior to the global financial crisis) and the Fed sells government bonds, then the federal funds rate will decrease.
If the Fed decreases the interest it pays on banks' reserve balances, we may expect an increase in the federal funds rate.
None of the other answers is correct.
What is the most effective monetary policy tool that the Federal Reserve uses?
a) Open market operations
b) Reserve requirements
c) Discount rate
d) Federal funds rate
Chapter 13 Solutions
Macroeconomics
Ch. 13.1 - Prob. 1STCh. 13.1 - Prob. 2STCh. 13.1 - Prob. 3STCh. 13.3 - Prob. 1STCh. 13.3 - Prob. 2STCh. 13.3 - Prob. 3STCh. 13.3 - Prob. 4STCh. 13 - Prob. 1QPCh. 13 - Prob. 2QPCh. 13 - Prob. 3QP
Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Prob. 7QPCh. 13 - Prob. 8QPCh. 13 - Prob. 9QPCh. 13 - Prob. 10QPCh. 13 - Prob. 11QPCh. 13 - Prob. 12QPCh. 13 - Prob. 1WNGCh. 13 - Prob. 2WNGCh. 13 - Prob. 3WNGCh. 13 - Prob. 4WNGCh. 13 - Prob. 5WNGCh. 13 - Prob. 6WNGCh. 13 - Prob. 7WNGCh. 13 - Prob. 8WNGCh. 13 - Prob. 9WNGCh. 13 - Prob. 10WNG
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Similar questions
- When would it be most appropriate for the Fed to increase the money supply: during a recession or when the economy is expanding? Why?arrow_forwardWhat do Federal Reserve economists use the Federal Reserve Board's model of the U.S. economy for? It is used only for forecasting. It is used for forecasting and policy analysis. It is used only to describe the economy. It is used only for policy analysis.arrow_forwardThe Federal Reserve does not target both the money supply and an interest rate because it would be too confusing to Wall Street and would disrupt the financial markets. it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. it would be illegal according to the Federal Reserve Act. the Fed cannot achieve a target for both the money supply and an interest rate at the same time.arrow_forward
- The upper limit to the federal funds rate is A) the interest rate on reserves, because when the federal funds rate gets above a certain level , banks only want to hold reserves. B) the discount rate, because if the federal funds rate were to go higher, banks would borrow from the Fed instead of from other banks. C) the loan rate in the market, because banks are not willing to pay more for borrowing reserves than they get from lending. D) there is no upper limits to the federal funds rate. 2. If the unemployment rate is falling from 4 to 3%, while the inflation rate is increasing to 5%, the Fed will most likely: A) increase the target for the federal funds rate. B) increase the money supply C) not change much D) decrease the target for the federal funds rate E) decrease the inflation rate by setting a price ceiling. 3. When bond interest rates fall, the relative expected return on holding stocks goes___, which means that stock demand and thereby stock prices will___ ,…arrow_forwardWhat specific actions could the Federal Reserve take to decrease the money supply and therefore raise interest rates to enact Contractionary Monetary Policy?arrow_forwardWhen the Federal Reserve buys bonds on the open market, it decreases the money supply. True False Click to select your answer.arrow_forward
- Why did the Fed switch from increasing Federal Reserve target rates from Dec 2015 to Dec 2018 to reducing interest rates in August 2019?arrow_forwardHow does the Federal reserve Bank "influence" interest rates to meet the objectives of the Fed?arrow_forwardAnswer the following questions. List and describe the three primary functions of the Federal Reserve. What is the federal funds rate? What are open market operations? Which open market operation would the Fed use to increase the money supply? What is the reserve requirement? What would happen to the reserve requirement if the Fed wanted to decrease the amount of money available for loans?arrow_forward
- There are two types of open market operations carried out by the central bank, dynamic and defensive open market operations. What is the purpose of each type of open market operation? Describe two situations when defensive open market operations are used. How are defensive open market operations usually carried out?arrow_forwardThe Federal Reserve annual report. Visit the Federal Reserve www.federalreserve.gov, and select "Monetary Policy." Then click on "Reports" and "Monetary Policy Report " to retrieve the current annual report (parts 1 and 2). Summarize the policy actions of the Board of Governors during the most recent period. In the Fed's opinion, how did the U.S. economy perform?arrow_forwardSuppose Federal Reserve wants to reduce money supply. How could Federal Reserve reduce money supply through the open market operations? Show your answers in a diagram. Your diagram should also show interbank loans. To reduce money supply, should Fed increase or decrease Fed funds rate? For the Fed Funds rate, who is a borrower? Who is a lender? For the discount rate, who is a borrower? Who is the lender?arrow_forward
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