Question 1 Which of the following Fed actions will increase bank lending?        Select one or more answers from the choices shown.The Fed raises the discount rate from 5 percent to 6 percent.The Fed raises the reserve ratio from 10 percent to 11 percent.The Fed buys $400 million worth of Treasury bonds from commercial banks.The Fed lowers the discount rate from 4 percent to 2 percent.Note that Fed sets a discount rate that it charges to banks for short-term loans, which then contributes to the rate that the banks charge customers on their loans. While the Fed has the ability to issue Federal Reserve Notes, the paper currency used in the U.S. monetary system, they do not print the money. That task is still performed by the U.S. Mint. After the financial crisis of 2007-2008, Congress increased the Fed’s supervisory powers. Question 2 Describe tools that the US Treasury and the Federal Reserve use to undertake restrictive monetary policy today (versus before the mortgage-debt crises).

Question
Asked Dec 9, 2019
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Question 1 

Which of the following Fed actions will increase bank lending?  

      Select one or more answers from the choices shown.

  1. The Fed raises the discount rate from 5 percent to 6 percent.
  2. The Fed raises the reserve ratio from 10 percent to 11 percent.
  3. The Fed buys $400 million worth of Treasury bonds from commercial banks.
  4. The Fed lowers the discount rate from 4 percent to 2 percent.

Note that Fed sets a discount rate that it charges to banks for short-term loans, which then contributes to the rate that the banks charge customers on their loans. While the Fed has the ability to issue Federal Reserve Notes, the paper currency used in the U.S. monetary system, they do not print the money. That task is still performed by the U.S. Mint. After the financial crisis of 2007-2008, Congress increased the Fed’s supervisory powers.

 

Question 2 

Describe tools that the US Treasury and the Federal Reserve use to undertake restrictive monetary policy today (versus before the mortgage-debt crises).

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Expert Answer

Step 1

Discount rate is the rate at which the Fed lends short term loans to other banks.

Step 2

If the Fed decreases the discount rate from 4% to 2%, it will encourage the banks to borrow more funds from Fed. This will result in the decrease in the int...

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