EBK EXPLORING MACROECONOMICS
7th Edition
ISBN: 9780100546400
Author: Sexton
Publisher: YUZU
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Chapter 17, Problem 21P
To determine
To explain:
The reason for Federal Reserve canrarely do an open market purchase of government securities at the same time it is increasing the discount rate or the
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The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of
10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from
the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%.
What is the federal funds rate, and what is the discount rate?
1.35
federal funds rate:
Incorrect
I
1.55
discount rate:
Incorrect
What will happen to other short-term interest rates if the Fed increases its federal funds rate target?
They will also increase.
They will remain unchanged..
They will become irrelevant.
They will decrease.
The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of
10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money
from the Federal Reserve at a rate of 0.75% . Second, it could borrow money from other banks at a rate of 0.55%.
What is the federal funds rate, and what is the discount rate?
federal funds rate:
%
discount rate:
%
What will happen to other short-term interest rates if the Fed increases its federal funds rate target?
They will become irrelevant.
They will decrease.
They will remain unchanged.
O They will also increase.
Discuss the structure and organization of the U.S. Federal Reserve
Chapter 17 Solutions
EBK EXPLORING MACROECONOMICS
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Similar questions
- Which of the following is correct? Select all that apply. The Board of Governors sets the interest rate on reserves. The federal funds market involves very short-term lending between banks. The current target for the fed funds rate is 0.0% to 0.25%. The interest rate on reserves (IOR) is 0.1%. The current discount rate at the Fed is 0.25%. The federal funds market involves lending between federal reserve banks.arrow_forwardwhy is fed holdings of Treasury securities?arrow_forwardInitially, the banking system has a required reserve ratio of 30.0 percent, $150,000 in total deposits, and no excess reserves. If the Fed reduces the required reserve ratio to 25.0, how much unused lending capacity does the banking system now have? Multiple Choice $30,000 $125,000 $150,000 $900,000arrow_forward
- If the Fed wants to lower the interest rate by increasing the money supply, it can raise the discount rate. sell bonds in the open market lower the required reserve ratio. None of the above.arrow_forwardThe Federal Open Market Committee (FOMC) is one branch of Federal Reserve System responsible for: Group of answer choices Approving discount rate Setting Federal Funds Rate Target Range Recommending Discount ratearrow_forwardA financial depository institution's reserve requirement is a specified percentage of: Group of answer choices deposits that must be kept as actual reserves. regulated reserves provided by the federal government. required reserves that must be kept as part of actual reserves. actual reserves kept at the federal reserve. excess reserves that must be backed as required reserves.arrow_forward
- According to Reuters, the People’s Bank of China hasbeen using targeted increases in banks’ reserve requirement ratios (RRR) in recent months. Explain why centralbanks impose reserve requirements for commercial banks.Why do commercial banks try to avoid this requirement?arrow_forwardSuppose again that Second National Bank has Reserves (Cash) of $25,000 and Demand Deposits of $100,000. The Required Reserve Ratio is 25%. The bank now sells $4,000 in US Treasury Bonds that the bank owns to the Federal Reserve (remember that the bank's balance sheet must remain in balance). How much Excess Reserves does Second National Bank now have?arrow_forwardIf a bank has required reserves of $27 million and deposits of $90 million with a required reserve ratio of 30%, how much can the bank lend out? $27 million $90 million $117 million $63 million $8.1 millionarrow_forward
- Which of the following places an upper bound on the interest rate that banks will pay to borrow reserves under an ample reserves regime? A Discount rate B Interest rate on required reserves C Fed funds rate D Interest payments on reserves held at the Federal Reservearrow_forwardStephanie deposits $500,000 in Bank of America. Assuming that banks lend out everything that they are legally allowed to lend, assume the reserve requirement is 14%, and the interest rate is 2%. How much money is created by the banking system based on this deposit alone?arrow_forwardThe Federal Funds Market is actually monitored and manipulated by the Federal Reserve, but individual investors can enter the market and borrow funds if desired. True or Falsearrow_forward
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