MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 13, Problem 5DQ
To determine
To describe: The options available when the federal funds rate reached around zero and the action plan to handle this situation.
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Students have asked these similar questions
Let’s pretend the economy is in a horrible recession, inflation is rising, and interest rates are sky-high. As the chair of the Fed, what monetary role are you going to take? Why?
You often read in the newspaper that the Fed has just lowered the discount rate. Does this signal that the Fed is moving to a more expansionary monetary policy? Why or why not?
When economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to?
1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy
2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy
3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations
4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount rate
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- Suppose most of your savings are in bonds and, according to an article in the Wall Street Journal, the Fed announces that it will carry out a contractionary monetary policy. What should you do? Should you continue to hold your bonds or should you move your funds into bank accounts?arrow_forwarddescribe the actions the Federal Reserve took to maintain a healthy economy during the recent economic crisis. in your opinion, were the actions necessary? were the Fed’s actions effective?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_forward
- pick one of the four tools the Fed uses to conduct monetary policy and discuss how it causes a change in interest rates in the US economy.arrow_forwardHow does the Federal reserve Bank "influence" interest rates to meet the objectives of the Fed?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_forward
- Considering that the current unemployment rate is 3.9% (April 2024), what kind of policies should the Fed implement (expansionary or contractionary)? Explain. How do you compare your recommendation to the current Federal Reserve Bank policies?arrow_forwardThe Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from the Federal Reserve at a rate of 0.75% . Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? federal funds rate: % discount rate: % What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will become irrelevant. They will decrease. They will remain unchanged. O They will also increase.arrow_forward"After the epidemic wiped out the economy in March of 2020, the central bank has purchased assets worth over $4.5 trillion. According to the minutes, According to the minutes, the Fed will start getting rid of those bonds to the tune of $90 billion a month." Assuming these bonds were purchased by the primary dealer using a T-account, please explain how the open market sale of $90 billion affects the Federal Reserve System's monthly balance sheet, ceteris paribus. How will the monetary base change?arrow_forward
- To what extent was the Fed being responsible for the housing price bubble of the early 2000s.arrow_forwardSuppose because of anticipated higher inflation in the near future, the Fed wants to decrease country’s money supply by $100 billion now. a) If the reserve ratio R = 10% and the Fed wants to use its open market operations policy tool, will it buy or sell U. S. government bonds? b) What would be the amount of bonds the Fed will buy or sell in the market? Show your calculations.arrow_forwardThe U.S. money supply (M1) at the beginning of 2015 was $2,683.3 billion broken down as follows: $1,165.7 billion in currency, $3.5 billion in traveler's checks, and $1,514.1 billion in checking deposits. Suppose the Fed decided to increase the money supply by decreasing the reserve requirement from 11 percent to 10 percent. Assume all banks were initially loaned up (had no excess reserves) and the quantity of currency and traveler's checks held outside of banks did not change. How large a change in the money supply would have resulted from the change in the reserve requirement? The money supply would change by $ billion. (Round your response to two decimal places and include a minus sign if necessary.)arrow_forward
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