K Uncoventional monetary policy: financial policy and quantitative easing Suppose that the IS and LM relations are IS: Y=C(Y-T)+1(Y, r+x)+G LM: r=r Interpret the interest rate as the federal funds rate adjusted for expected inflation, the real policy interest rate of the Federal Reserve. Assume that the rate at which firms can borrow is much higher than the federal funds rate, equivalently that the premium y, in the IS equation is high. Suppose the government takes action to improve the solvency of the financial system. If the government's action is successful, and banks become more willing to lend, what is likely to happen to the premium? It will lower the premium

K Uncoventional monetary policy: financial policy and quantitative easing Suppose that the IS and LM relations are IS: Y=C(Y-T)+1(Y, r+x)+G LM: r=r Interpret the interest rate as the federal funds rate adjusted for expected inflation, the real policy interest rate of the Federal Reserve. Assume that the rate at which firms can borrow is much higher than the federal funds rate, equivalently that the premium y, in the IS equation is high. Suppose the government takes action to improve the solvency of the financial system. If the government's action is successful, and banks become more willing to lend, what is likely to happen to the premium? It will lower the premium

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 7DQ

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