Federal Reserve Economic Data (FRED), from Federal Reserve Bank of Saint Louis provide the data in the chart below. In addition on Dec 14, 2016- the Federal Funds Rate was 0.41 percent per year, and on Dec 28, 2016 it was 0.66 percent per year. At the current level of the Federal Funds Rate, the Fed is concerned about inflation 6.0 1.0 6.0 5.0 4.0 3.0- 2.0 1.0 0.0 Federal funds rate (percent per year) 09/2006 09/2000 09/2010 Year more; than it is about the exchange rate less; than it is about unemployment more; than it is about unemployment less; than it is about government debt 09/2012 09/2014 09/2016

Federal Reserve Economic Data (FRED), from Federal Reserve Bank of Saint Louis provide the data in the chart below. In addition on Dec 14, 2016- the Federal Funds Rate was 0.41 percent per year, and on Dec 28, 2016 it was 0.66 percent per year. At the current level of the Federal Funds Rate, the Fed is concerned about inflation 6.0 1.0 6.0 5.0 4.0 3.0- 2.0 1.0 0.0 Federal funds rate (percent per year) 09/2006 09/2000 09/2010 Year more; than it is about the exchange rate less; than it is about unemployment more; than it is about unemployment less; than it is about government debt 09/2012 09/2014 09/2016

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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16 Read the following extract and answer questions 1.6-1.9. "The European Central Bank is expected to set aside recession worries and deliver another jumbo interest rate hike this week to cool inflation, as Russia's war on Ukraine sends energy prices soaring Inflation in the 19-nation Eurozone climbed to an all-time high of nearly 10% in September, five times the ECB's target of two percent The ECB's governing council last month raised its key interest rates by an unprecedented 75 basis points, and many observers expect it to repeat the move at Thursday's meeting." The view of the inflation process being expressed in the above quote is a) The monetarist approach to inflation b) Cost push inflation c) Demand push inflation d) The conflict approach 1.7 By hiking interest rates, the European Central Bank is aiming to achieve a) Price stability b) Economic growth c) Full employment d) Balance of payments stability 1.8 The view being reported in the extract of how the European…
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Given the latest data on the state of the U.S. economy, the Fed signals the next increase in the target for the federal funds. The increase won’t happen until the Fed’s meeting in December of 2016. Explain the following • What open market operations the Fed would have to take to achieve the stated desired change in the federal funds rate? • What will happen to bonds prices and interest rates associated with these bonds? • Is the Fed making the policy more expansionary or contractionary? Explain why?
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INTEREST RATE (Percent) 18 15 2 so 3 0 0 20 Money Supply Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to will bonds and other interest-bearing assets, and bond issuers will realize that they equilibrium is restored in the money market at an interest rate of % than the quantity of money their money holdings. In order to do so, they interest rates until
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