Chapter 13: Problem 2
Briefly describe the functions that the Fed performs for the banking community. In what sense is the Fed a banker's bank?
Chapter 13: Problem 2
Briefly describe the functions that the Fed performs for the banking community. In what sense is the Fed a banker's bank?
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Get started for freeDraw a graph showing equilibrium in the money market. Carefully label all curves and axes, and explain why the curves have the slopes that they do.
First Bank has total deposits of \(\$ 2,000,000\) and legal reserves of \(\$ 220,000\). a. If the reserve requirement is 10 percent, what is the maximum loan that First Bank can make, and what is the maximum increase in the money supply based on First Bank's reserve position? b. If the reserve requirement is changed to 5 percent, how much can First Bank lend, and by how much can the money supply be expanded?
Suppose you are a member of the FOMC and the U.S. economy is entering a recession. Write a directive to the New York Fed about the conduct of monetary policy over the next two months. Your directive should address a target for the rate of growth of the \(\mathrm{M}_{2}\) money supply, the federal funds rate, the rate of inflation, and the foreign exchange value of the dollar versus the Japanese yen and curo. You may refer to the Board of Governors website, www.federalreserve.gov/monetarypolicy, for examples, since this site posts FOMC directives.
If the Fed increases the money supply, what will happen to each of the following (other things being equal)? a. Interest rates b. Money demand c. Investment spending d. Aggregate demand c. The cquilibrium level of national income
There are several tools that the Fed uses to implement monetary policy. a. Briefly describe these tools. b. Explain how the Fed would use cach tool in order to increase the money supply. c. Suppose the federal funds rate equals zero. Does that mean the Fed can do nothing more to stimulate the economy? Explain your answer.
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