MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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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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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?
Please select ONE of the following questions as your discussion topic and respond with
a paragraph or two that directly answers the question AND makes reference to class
materials. For full credit, you must also respond to the posts of at least two of your
classmates.
1. The Federal Reserve Board has enormous power over people's lives with its power to
set and influence policy that determines monetary policy in the United States. Do you
think this is proper for a democracy to provide the FED with so such power? How is the
FED held accountable?
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?
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Similar questions
- 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 ratearrow_forwardSuppose 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_forward
- What 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_forwardpick 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_forward2) During the financial crises and recession of 2007-09, the Fed lowered the federal funds rate target to 0-0.25%. However, long-term interest rates, like mortgage rates, were still fairly high. One thing the Fed did to lower long-term rates was that the Fed : A) bought long-term bonds B) lowered the long-term interest rates by lowering the reverse repo rate C) lowered the long-term interest rates by lowering the discount rate D) sold long-term bondsarrow_forward
- Members of the Board of Governors of the Fed arearrow_forwardHow does the Federal reserve Bank "influence" interest rates to meet the objectives of the Fed?arrow_forwardThe Federal Reserve has decided to sell treasury bonds on a regular basis over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.arrow_forward
- The 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_forwardTo what extent was the Fed being responsible for the housing price bubble of the early 2000s.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
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