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Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 10P

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

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Let's say that the Fed is concerned about recession. It would use
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doing so is [Select]
policy to address this, and today the major way of

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Outline to the policy choices for contractionary and expansionary options of the Fed.
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. In April 2022 theFederal Reserve boosted its target for the Federal funds rate for the first time in 14 years, increasing it from a 10-year low of .25% to 4.25%. What role did the Biden Administration have in this decision? A. None; the Fed is not accountable to the executive branch of government.B. Some; most but not all of the people who voted for this change are appointees of the Bush Administration.C. Considerable; if the Bush Administration were unhappy with the decision, it could force the resignation of those who voted in ways it did not like.D. Total; policy makers at the Fed serve at the pleasure of the President.
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9. What are the two parts of the Fed's dual mandate? Answer the following with the dual mandate and bullseye chart in terms of signals to the Fed about the status of economy. The Fed's dual mandate, given to it by Congress in should be federal employment and stable prices. The bullseye chart was developed by the Federal Reserve Bank of Chicago. It is a visual comparison of the current state of the economy with the Fed's dual mandate. The chart shows the inflation rate on the ( horizontal, vertical ) axis and the unemployment rate on the ( horizontal, vertical ) axis and has crosshairs where the two targets meet. The southwest (lower left) and northeast (upper right) quadrants send conflicting messages about which monetary policy is appropriate. If the point showing the actual rates of unemployment and inflation lies (northwest, southeast, southwest, northeast ) of the center of the bullseye, the Fed will be in a policy predicament. The fact that the actual unemployment rate is below…
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Why can’t the Fed automatically maintain full employment and low inflation?