EBK ECONOMICS
13th Edition
ISBN: 8220106799642
Author: PARKIN
Publisher: PEARSON
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Chapter 31, Problem 9SPA
To determine
Illustrate graphically the effects of the Fed’s low interest rates on business investment.
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Refer to the News Wire to answer one question.
NEWS WIRE: DISCOUNT RATES
Fed 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.
Source: News accounts of March 2020.
If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to
interest rate cuts?
Instructions: Enter your response as a whole number.…
Fed 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?
Interest rates have been changing dramatically. Do you expect interest rates to continue to change?
Which way do you think they will move – up or down? In general, comment on why the Federal Reserve changes interest rates (or adjusts the discount rate).
What is the Federal Reserve trying to do if it “cuts interest rates” and what is it trying to do if it “raises interest rates”?
Chapter 31 Solutions
EBK ECONOMICS
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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