Economics: Principles & Policy
14th Edition
ISBN: 9781337912679
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning US
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Question
Chapter 29, Problem 5DQ
To determine
The consequences of a fall in the federal funds rate into zero.
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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
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Chapter 29 Solutions
Economics: Principles & Policy
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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 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_forwardConsidering 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_forwardTo 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_forward
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