Pearson eText Economics -- Instant Access (Pearson+)
13th Edition
ISBN: 9780136879459
Author: Michael Parkin
Publisher: PEARSON+
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Chapter 31, Problem 15SPA
To determine
The Volcker rule.
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A news website might have this headline: “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent.” A more detailed account of the Fed’s action would say:
“Today the Fed told its bond traders to sell enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.”
“Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.”
“Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.”
“Today the Fed told its bond traders to buy enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.”
12
Reducing the Fed’s Balance Sheet by Selling Mortgage-Backed Securities. Suppose the Fed wanted to reduce its balance sheet and decided to sell its mortgage-backed securities instead of its holding of government bonds. What types of interest rates would you expect to see increase? (Related to Application 1 on page 404.)
"Why do economists nearly uniformly support an independent Fed rather than one beholden directly to either the president or Congress?
Chapter 31 Solutions
Pearson eText Economics -- Instant Access (Pearson+)
Ch. 31.1 - Prob. 1RQCh. 31.1 - Prob. 2RQCh. 31.1 - Prob. 3RQCh. 31.1 - Prob. 4RQCh. 31.2 - Prob. 1RQCh. 31.2 - Prob. 2RQCh. 31.2 - Prob. 3RQCh. 31.3 - Prob. 1RQCh. 31.3 - Prob. 2RQCh. 31.3 - Prob. 3RQ
Ch. 31.3 - Prob. 4RQCh. 31.4 - Prob. 1RQCh. 31.4 - Prob. 2RQCh. 31.4 - Prob. 3RQCh. 31.4 - Prob. 4RQCh. 31.4 - Prob. 5RQCh. 31 - Prob. 1SPACh. 31 - Prob. 2SPACh. 31 - Prob. 3SPACh. 31 - Prob. 4SPACh. 31 - Prob. 5SPACh. 31 - Prob. 6SPACh. 31 - Prob. 7SPACh. 31 - Prob. 8SPACh. 31 - Prob. 9SPACh. 31 - Prob. 10SPACh. 31 - Prob. 11SPACh. 31 - Prob. 12SPACh. 31 - Prob. 13SPACh. 31 - Prob. 14SPACh. 31 - Prob. 15SPACh. 31 - Prob. 16APACh. 31 - Prob. 17APACh. 31 - Prob. 18APACh. 31 - Prob. 19APACh. 31 - Prob. 20APACh. 31 - Prob. 21APACh. 31 - Prob. 22APACh. 31 - Prob. 23APACh. 31 - Prob. 24APACh. 31 - Prob. 25APACh. 31 - Prob. 26APACh. 31 - Prob. 27APACh. 31 - Prob. 28APACh. 31 - Prob. 29APACh. 31 - Prob. 30APACh. 31 - Prob. 31APACh. 31 - Prob. 32APACh. 31 - Prob. 33APACh. 31 - Prob. 34APACh. 31 - Prob. 35APACh. 31 - Prob. 36APACh. 31 - Prob. 37APACh. 31 - Prob. 38APACh. 31 - Prob. 39APACh. 31 - Prob. 40APACh. 31 - Prob. 41APA
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- When economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to? 1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy 2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy 3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations 4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount ratearrow_forwardFed Cuts Key Interest Rate Again Washington, DC—Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. If every one-point change in the federal funds rate alters aggregate demand by $180 billion, how far would AD shift in response to the interest rate cuts?arrow_forwardJohn Taylor has argued that: "Considerable empirical work supports the view that interest rates were too low for too long in 2003-2005 and were a major factor in the housing boom and bust that resulted." Source: John Taylor, First Principles: Five Keys to Restoring America's Prosperity, New York: W.W. Norton & Company, 2012, p. 133. When comparing the actual target federal funds rate and the federal funds rate suggeted by the Taylor rule during the 2003-2005 period, the Taylor rule federal funds rate was greater than the actual target federal funds rate, thus indicating that interest rates were too low during the 2003-2005 period. The interest rates during the 2003-2005 period may have contributed to the housing boom and bust by: (Select all that apply) A. creating a situation where financial institutions made too many loans because of the high demand for mortgages. B. allowing Fannie Mae and Freddie Mac to bundle large amount of loans into mortgage-backed securites. C. keeping the…arrow_forward
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