Question

ers 14,16,+ PP (07/30) Saved Help Sav If the Federal Reserve Bank lowered the interest rate on the IOER, then this would incentivize banks to lend more money True or False True False

Answer 1

1. If the Federal Reserve bank lowered the interest rate on the IOER, then this would incentivise banks to lend more money.

This statement is true. IOER means Interest On Excess Reserves, which means banks having an excess of reserves apart from regulatory requirements, on which Federal Reserve bank pays interest to the banks. If Federal Reserve increases the IOER then the banks instead of lending money to people, it will focus on increasing their excess returns and earn an interest rate on them. The opposite happens when the Federal Reserve decreases the IOER, banks will lend more money to people instead of holding it as reserves.

2. Senator Chris Dodd (D-Connecticut) and Representative Barney Frank (D-Massachusetts), were responsible for starting the sub-prime mortgage crisis. Later they both wrote a new bill called Wall Street Reform and Consumer Protection Act of 2010 also known as Dodd-Frank Act which was signed by 44th U.S. President Barack Obama.

3. The given statement is true. The Fed's discount window lends money to large and mid-size us corporations along with local city governments that found themselves in financial trouble. This is the primary function of any central bank to provide liquidity and monetary help to those banks which are facing financial trouble.

4. The given statement is true.

M1 includes the cash in hand (used in daily purpose), demand deposits (DD) and all kinds of checks. It is the liquid cash available to us or the assets that can be liquified easily like demand deposits.

MZM (Money of Zero Maturity) is a broad term, which consists of M1 plus savings a/c deposits and money market accounts. It is the money usually used for consumption purposes.

MZM= M1 + savings a/c deposits and money market accounts

Therefore, MZM money supply money statistic is higher than M1 money supply statistic.