11. Describe how the usefulness of the federal funds rate has changed from before the financial crisis to after. Targeting the federal funds rate (is, is not ) as important a tool today as it was before the financial crisis. That is because banks generally have, have not ) enough in reserves to meet their reserve requirement and ( more, no longer ) need to borrow from one another in the federal funds market. As a result, the federal funds market and the federal funds rate became (very relevant, irrelevant ). Today, the Fed still sets a target for the federal funds rate but finds it (more, less ) effective to just change the interest rate on banks' reserves. By adjusting the interest rate paid on excess reserves, the Fed can stimulate or restrict lending, money creation, and interest rates even while the banking system remains awash in reserves.

11. Describe how the usefulness of the federal funds rate has changed from before the financial crisis to after. Targeting the federal funds rate (is, is not ) as important a tool today as it was before the financial crisis. That is because banks generally have, have not ) enough in reserves to meet their reserve requirement and ( more, no longer ) need to borrow from one another in the federal funds market. As a result, the federal funds market and the federal funds rate became (very relevant, irrelevant ). Today, the Fed still sets a target for the federal funds rate but finds it (more, less ) effective to just change the interest rate on banks' reserves. By adjusting the interest rate paid on excess reserves, the Fed can stimulate or restrict lending, money creation, and interest rates even while the banking system remains awash in reserves.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 2PA

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Similar questions

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