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On October 30, 2019, the FOMC lowered its target rate for the federal funds rate. As part of its announcement of the policy change, the FOMC stated that it was lowering the interest rate it paid on reserve balances from 1.80% to 1.55% and the interest rate offered on reverse repurchase agreements from 1.70% to 1.45%. Briefly explain why in lowering its target for the federal funds rate, the FOMC had to lower these other two interest rates. O A. Banks lose money when the Fed lowers the FFR, so in order to maintain profitability in the banking system, the Fed had to lower these other two rates to increase bank revenue. OB. When the Fed changes the FFR, it only impacts commercial banks, so in order to be fair and lower rates for nonbank entities, it had to adjust these other two rates. OC. Banks had been holding large amounts of excess reserves, making open market operations less effective at changing the FFR, so the Fed began using these two rates instead to influence the FFR. OD. If the Fed lowered the FFR without lowering these other two rates, it would cause banks to become less liquid, making them more unstable. 2.5- 2.4- 2.3- 2.2- 2.1- 2- 1.9- 1.8- 1.7- 1.6- 1.5- 1.4- Federal funds rate D Reserves, R. Top Bottom Q G

On October 30, 2019, the FOMC lowered its target rate for the federal funds rate. As part of its announcement of the policy change, the FOMC stated that it was lowering the interest rate it paid on reserve balances from 1.80% to 1.55% and the interest rate offered on reverse repurchase agreements from 1.70% to 1.45%. Briefly explain why in lowering its target for the federal funds rate, the FOMC had to lower these other two interest rates. O A. Banks lose money when the Fed lowers the FFR, so in order to maintain profitability in the banking system, the Fed had to lower these other two rates to increase bank revenue. OB. When the Fed changes the FFR, it only impacts commercial banks, so in order to be fair and lower rates for nonbank entities, it had to adjust these other two rates. OC. Banks had been holding large amounts of excess reserves, making open market operations less effective at changing the FFR, so the Fed began using these two rates instead to influence the FFR. OD. If the Fed lowered the FFR without lowering these other two rates, it would cause banks to become less liquid, making them more unstable. 2.5- 2.4- 2.3- 2.2- 2.1- 2- 1.9- 1.8- 1.7- 1.6- 1.5- 1.4- Federal funds rate D Reserves, R. Top Bottom Q G

Brief Principles of Macroeconomics (MindTap Course List)
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
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On October 30, 2019, the FOMC lowered its target rate for the federal funds rate. As part of its announcement of the policy change, the FOMC stated that it was lowering the interest rate it paid on reserve balances from 1.80% to 1.55% and the interest rate it offered on reverse repurchase agreements from 1.70% to 1.45%. Briefly explain why in lowering its target for the federal funds rate, the FOMC had to lower these other two interest rates. O A. Banks lose money when the Fed lowers the FFR, so in order to maintain profitability in the banking system, the Fed had to lower these other two rates to increase bank revenue. B. When the Fed changes the FFR, it only impacts commercial banks, so in order to be fair and lower rates for nonbank entities, it had to adjust these other two rates. C. Banks had been holding large amounts of excess reserves, making open market operations less effective at changing the FFR, so the Fed began using these two rates instead to influence the FFR. D. If the Fed lowered the FFR without lowering these other two rates, it would cause banks to become less liquid, making them more unstable. C 2.5- 2.4- 2.3- 2.2- 2.1- 2- 1.9- 1.8- 1.7- 1.6- 1.5- 1.4- Federal funds rate D Reserves, R S Top Bottom O Ly
Transcribed Image Text:On October 30, 2019, the FOMC lowered its target rate for the federal funds rate. As part of its announcement of the policy change, the FOMC stated that it was lowering the interest rate it paid on reserve balances from 1.80% to 1.55% and the interest rate it offered on reverse repurchase agreements from 1.70% to 1.45%. Briefly explain why in lowering its target for the federal funds rate, the FOMC had to lower these other two interest rates. O A. Banks lose money when the Fed lowers the FFR, so in order to maintain profitability in the banking system, the Fed had to lower these other two rates to increase bank revenue. B. When the Fed changes the FFR, it only impacts commercial banks, so in order to be fair and lower rates for nonbank entities, it had to adjust these other two rates. C. Banks had been holding large amounts of excess reserves, making open market operations less effective at changing the FFR, so the Fed began using these two rates instead to influence the FFR. D. If the Fed lowered the FFR without lowering these other two rates, it would cause banks to become less liquid, making them more unstable. C 2.5- 2.4- 2.3- 2.2- 2.1- 2- 1.9- 1.8- 1.7- 1.6- 1.5- 1.4- Federal funds rate D Reserves, R S Top Bottom O Ly
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