Explain the Federal Open Market Committee’s choice to lower the Federal Funds Rate and how it impacts the economy. Describe how this action impacts bank reserves, how this changes the loanable funds market (be sure to mention interest rate and lending levels and use a supply and demand model if its helpful), and business and consumer borrowing and spending. You can assume that leakages are minimal.
The Federal Open market Committee tends to lower the federal fund rate to influence the economy. The lower federal fund rate makes the overnight loans cheaper, Thus it increases the availability of excess reserves with banks and these banks make the loan to the investors and consumers increasingly.
When the money supply rises due to the decline in the federal fund rate, The money supply increase would cause the fall in the interest rate, thus when the interest rate decline in the economy, the investors and consumers find the borrowings relatively cheaper and they go for the massive borrowing, The eventually, there would be a rise in the economic activities and aggregate demand in the economy.
Following is the diagram:
In the above diagram, the decline in the federal fund rate would shift the money supply to right thereby causing the rise in the money quantity and interest rate declines to the i-1.
Thus, the investment and consumption spendings would see the rise.
Explain the Federal Open Market Committee’s choice to lower the Federal Funds Rate and how it...
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
Describe how the Fed’s (the F.O.M.C’s-Federal Open Market Committee) manipulation of the fed funds target rate, the overnight rate that Federal Reserve member financial intermediaries lend reserves to one another, affects the overall money supply (M1* = Currency in Circulation [C] plus Checkable Deposits [D]). Additionally, which monetary policy stabilization prescriptions would you recommend given that in short run, when wages and prices are sticky/rigid, the economy is running well below fully utilizing all of its factors of production?
10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to The federal funds rate is the interest rate that banks charge one another...
In the market for reserves, show the impact on the federal funds rate from an open market operations sale.
9. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower spread between the discount rate and the federal funds rate decreases banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to The federal funds rate...
10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to The federal funds rate is the interest rate that banks charge one another...
10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to ipply to . The federal funds rate is the interest rate that banks...
Explain how the Fed uses open market operations and discount lending to affect the fed funds rate and reserves in the banking system?
Assume that the market for loanble funds is in equilibrium and that the federal government budget is balanced. Now assume that the federal government begins to run a budget deficit (G > T). Does this shift the supply or demand for loanable funds? Why? What happens to the real interest rate? What happens to the quantity of loanable funds? What is the resulting impact on investment in the economy? What is this called?
27) Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as an) for the borrowing bank and a(n) for the lending bank. A) asset; asset B) asset; liability C) liability; liability D) liability; asset 28) An expectation may fail to be rational if A) relevant information was not available at the time the forecast is made. B) relevant information is available but...