In today's ample reserves regime, does the Fed set a target level or range for the federal funds rate, and how is it achieved? The Fed achieves its federal funds rate target _______.
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In today's ample reserves regime, does the Fed set a target level or range for the federal funds rate, and how is it achieved?
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- The Fed achieves its federal funds rate target _______. A. level by setting the discount rate and the interest on reserves rate B. range because whatever the supply of reserves, the rate is between the discount rate and the interest on reserves rate C. level by conducting daily open market operations D. range by setting the supply of reserves equal to the quantity of reserves demanded at the range midpoint10. If the economy was in a recession and employment fell short of the Fed’s maximum employment goal, the Fed would likely a. lower the target range for the federal funds rate and raise the administered rates (interest on reserve balances rate, ON RRP offering rate, and discount rate). b. raise the target range for the federal funds rate and lower the administered rates (interest on reserve balances rate, ON RRP offering rate, and discount rate). c. raise the target range for the federal funds rate and raise the administered rates (interest on reserve balances rate, ON RRP offering rate, and discount rate). d. lower the target range for the federal funds rate and lower the administered rates (interest on reserve balances rate, ON RRP offering rate, and discount rate).Which of the following is one of the Fed's policy tools? One of the Fed's policy tools is _______. A. the discount rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks B. the required reserve ratio, which equals 3 percent on checkable deposits and 10 percent on savings deposits C. the open market operations, which are purchase of government securities from the government D. the monetary base, which is the sum of coins and Federal Reserve notes
- The diagrams below depicts the initial equilibrium in the market for reserves. Draw in the diagrams, and explain, how the equilibrium Fed funds rate and the quantity of reserves would change as a result of each policy stated below. a) The Fed conducts a large-scale open market purchase of securities. Federal Funds Rate " C " Federal Funds Rate e b) The Fed increases the interest on reserves above the initial fed funds rate. L NBR for R NBR Quantity of Reserves, R R Quantity of Reserves, RMacmillan Learning Suppose you win on a scratch-off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 10%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: S 24750 Incorrect Which events could cause the increase in the money supply to be less than its potential? All money loaned out is deposited back into the banking system. Banks decide to keep some excess reserves on hand. Banks choose to loan out all excess reserves. Some loan recipients choose to hold some cash instead of depositing all of it in banks.Which of the following best explains why a large increase in the supply of bank reserves can have no effect on the equilibrium effective federal funds rate? The demand for bank reserves becomes perfectly elastic at the interest rate the Fed pays on reserves. The supply curve for bank reserves is upward sloping relative to the federal funds rate, The quantity of reserves demanded by banks is negatively related to the federal funds rate. O The supply of bank reserves become perfectly elastic at the primary discount rate set by the Fed.
- 8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply ollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth $ of U.S. government…The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்BSW Bank currently has $150 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. iIf the Federal Reserve decreases the reserve requirement to 6 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to BSW in the form of transaction deposits.
- Using the supply and demand analysis (i.e., diagrams)of the market for reserves, indicate what happens to the federal funds rate, borrowed reserves, and nonborrowed reserves, holding everything else constant, under the following situations. Please use diagrams a. The economy is surprisingly strong, leading to an increase in the amount of checkable deposits. b. Banks expect an unusually large increase in withdrawals from checking deposit accounts in the future. c. The Fed reduces reserve requirements and then offsets this action by conducting an open market sale of securities. d. The Fed raises the interest rate on reserves above the current equilibrium federal funds rate.Explain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate rangeThe Federal Reserve has decided it wants to increase interest rates by decreasing the money supply through deposits held at financial intermediaries. All else equal, if the reserve requirement is 10% for all deposits, and the Fed wants to decrease deposits by $100 million, which of the following actions should be taken? Assume no excess reserves exist in the banking system.a. Buy government securities from dealers totaling $1 billion.b. Sell government securities to dealers totaling $111 million.c. Buy government securities from dealers totaling $11.1 million.d. Sell government securities to dealers totaling $11.1 million.e. None of the above.