Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 14, Problem 17APA
To determine
Determine the conflict among the Fed’s mandated policy goals.
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The Fed used to set a single target for the federal funds rate before 2008. After 2008, it _______.
Select one:
does not set a target
sets a target range that is 0.25 percentage points wide
sets a target range that is 1.5 percentage points wide
sets a target range that is 1 percentage points wide
1 Suppose you are the Fed chair. The economy is experiencing inflation at a time of full capacity. You use the Taylor rule. Inflation is currently at 10%. The Fed's target rate is 2%. The economy is operating at 1% above its potential. What level of fed funds would you prescribe?
2. Given the above data, and further suppose the current fed funds rate is 4%, specify at least 3 tools of you would employ, and how you would employ them to achieve your goal?
3 What is a liquidity trap? What phase of the business cycle would you expect to encounter this?
4 Suppose that the target range for the federal funds rate is 4.75 to 5.0 percent but that the equilibrium federal funds rate is currently 5.25 percent. Assume that the equilibrium federal funds rate falls (rises) by 1 percent for each $120 billion in repo (reverse repo) bond transactions the Fed undertakes. If the Fed wishes to raise the equilibrium federal funds rate up to the bottom end of the target range, will it initiate…
5 You are an FOMC member, and you know that, in the last few recessions, the Fed cut interest rates by around 500 basis points. As the pandemic loomed in early 2020, the bottom of the Fed Funds target range was at 1.5 percent (the Fed only had around 150bp room to cut), while PCE inflation (your favourite inflation measure) was near the 2 percent target. What other options were available to the Fed? How do they work?
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1RQCh. 14.1 - Prob. 2RQCh. 14.1 - Prob. 3RQCh. 14.1 - Prob. 4RQCh. 14.2 - Prob. 1RQCh. 14.2 - Prob. 2RQCh. 14.2 - Prob. 3RQCh. 14.3 - Prob. 1RQCh. 14.3 - Prob. 2RQCh. 14.3 - Prob. 3RQ
Ch. 14.3 - Prob. 4RQCh. 14.4 - Prob. 1RQCh. 14.4 - Prob. 2RQCh. 14.4 - Prob. 3RQCh. 14.4 - Prob. 4RQCh. 14.4 - Prob. 5RQCh. 14 - Prob. 1SPACh. 14 - Prob. 2SPACh. 14 - Prob. 3SPACh. 14 - Prob. 4SPACh. 14 - Prob. 5SPACh. 14 - Prob. 6SPACh. 14 - Prob. 7SPACh. 14 - Prob. 8SPACh. 14 - Prob. 9SPACh. 14 - Prob. 10SPACh. 14 - Prob. 11SPACh. 14 - Prob. 12SPACh. 14 - Prob. 13SPACh. 14 - Prob. 14SPACh. 14 - Prob. 15SPACh. 14 - Prob. 16APACh. 14 - Prob. 17APACh. 14 - Prob. 18APACh. 14 - Prob. 19APACh. 14 - Prob. 20APACh. 14 - Prob. 21APACh. 14 - Prob. 22APACh. 14 - Prob. 23APACh. 14 - Prob. 24APACh. 14 - Prob. 25APACh. 14 - Prob. 26APACh. 14 - Prob. 27APACh. 14 - Prob. 28APACh. 14 - Prob. 29APACh. 14 - Prob. 30APACh. 14 - Prob. 31APACh. 14 - Prob. 32APACh. 14 - Prob. 33APACh. 14 - Prob. 34APACh. 14 - Prob. 35APACh. 14 - Prob. 36APACh. 14 - Prob. 37APACh. 14 - Prob. 38APACh. 14 - Prob. 39APACh. 14 - Prob. 40APACh. 14 - Prob. 41APA
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Similar questions
- Suppose the Fed conducts an open market purchase by buying 10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30.arrow_forwardA well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective chapter) describes the short run tradeoff typically observed between inflation and unemployment. Based on the discussion of expansionary and contractionary monetary policy, explain why one of these variables usually falls when the other rises.arrow_forwardGood afternoon, I cannot figure ou the answer to this argument below. Which of the following is a valid argument for an independent Fed? The Fed needs freedom to be able to monetize the deficit and the national debt. The Fed directors need power to achieve long-term political objectives. Without an independent Fed, political incumbents might use their power to achieve short-term political objectives that could create longer-term economic problems.arrow_forward
- Before you call the meeting, the existing Fed Funds rate is 3.5% and the Discount rate is 4.5%. The Fed pays banks 1% for reserves they keep at the Fed. What Fed action would you recommend for the Fed Funds Target? What would you report in the Teal book? Who are the members of the FOMC that will attend the meeting? Which of these have voting rights? What issue are you proposing to come before the FOMC vote? Tools of Monetary Policy: Draw the Fed Funds Market to reflect the condition described in part II before your policy was adopted. Now, show the impact upon the Fed Funds Market as the new policy establishes a new target Fed Funds rate.arrow_forwardWhy did the Fed abanon its traditional approach for setting the fed funds rate? (Select all that apply) 1. There was a stigma associated with discount lending from the Fed 2. There was a growing number of shadow banks that were not receiving the interest rate on reserves 3. Fed no longer wanted to pay the interest on reserves 4. Fed's large scale asset purchases largely expanded the supply of reservesarrow_forwardhe Fed used to have three tools that they used to impact interest rates and economic activity, the reserve requirement, the discount rate, and open market operations. Now they have at least five tools, but they seem to have abandoned two of their original tools. What are the two new tools that they use? Why did they move away from two to the original three tools? Do you think the Fed is going down the right path? write 2 informative paragrahsarrow_forward
- Suppose real GDP is forecasted to grow by 2.482.48%, the velocity of money has been stable, and the Fed announces an inflation target of 3.303.30%. What is the largest money growth rate the Fed could implement and still achieve its inflation target?arrow_forward3. Outline to the policy choices for contractionary and expansionary options of the Fed.arrow_forwardWhich one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidencearrow_forward
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