Question

What is financial​ stability? What actions has the Fed taken since 2007 in pursuit of financial​ stability? Use a graph to illustrate the effects of the​ Fed's actions. Financial stability is a situation in which​ ______.  

A. financial markets and institutions function normally to allocate capital resources and risk

B. all stock market indices experience daily positive growth

C. the real interest rate is less than 3 percent a year

D. the nominal interest rate is less than 5 percent a year

In pursuit of financial​ stability, the Fed since 2007 has​ _______.

A. engaged in quantitative easing

B. raised the federal funds rate

C. lowered the natural unemployment rate

D. increased the demand for reserves

The graph shows the market for bank reserves in a normal time.

   Draw a point to show the equilibrium federal funds rate and equilibrium quantity of reserves. Label it 1.  

  Draw a new supply of reserves curve when the Fed increases the quantity of reserves to​$1,000 billion. Label it RS1. 

  Draw a new demand for reserves curve to show the effect of banks facing increased risk resulting in a federal funds rate of 0 percent a year. Label it RD1.  

  Draw a point at the new equilibrium federal funds rate and equilibrium quantity of reserves. Label it 2.
Federal funds rate (percent per year) RSo 7- 6- 5- RDO 600 Reserves on deposit at the Fed (billions of dollars) 200 400 1,000 1,200 0 800 Draw only the objects specified in the question.

Answer 1

Answer: inan eralelability financial abilty meang: "Tn Cos el lipe ine eenct af fihoncial ci srs or recesion, e fed may go atfempt to achiene d dual mandale in arday totake drastrc actons and save he eonomy. knc fedi fnany Goal peaching fimancial stabtlt Es is e foint where fhan cial max kets and istitotrons darces and ngk. Can operole romally do destvibute capiřlal Actiont fed tapen în aoo Tre 2004 (and aoo 8) dhoncial Gnt is dmedhe Clonsmy mancal tnetabilty The domandY Teere Sky d ckeded, al feasfubank mare af their apfef as hederves . cecided to hold .-to avoid amere mdenfe ecesion, the Fed &upplbed bellns afdbtlars lban to ponole lending The fed providad omany mony ban sdhat federa!

fard rade fallto 2eno Greaph: RSO Rst Roo Qoo DOD Loo Perenves on depotit at fed CAtlteng) on graph Pefre e onsis CRa) .The &upply af ezerves ( Rso) and demond rreerves fedoyal fmds ate =s7. uhere nomal and Eqpilibri Cuhen esenves, pemand dreewel shftsday do njht to Ro tomaye inoreate. în domand, Fed ihoraaled e fupply of -0/. rew Eqpiliba ttng upaly ofelerves far wgh relene ederal dund ale C peryear)

Financial tabi lit 8 e ituatrm n cshich A A) Anoncal marteds and nsthitutra fmetion nemnally allocade capital belour a and vsk purrt a financial gability , fed 8tnee a04 has Dnereaed e danond oreserveg Graph: icdonal findy rate S Point 2 Roo fointa Q00 Peteme depaf it atfed