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Chapter 16: Q.1 For Critical Thinking (page 366)

Why do you think that many people pay so much attention to likely future movements in the federal funds rate?

Short Answer

Expert verified

Many people pay so much attention to likely future movements in the federal funds rate it is the pinnacle money related to the power of the nation and from the exploration of social financial matters.

Step by step solution

01

introduction

Financial specialists utilize all suitable data as a base while shaping their assumptions regarding what's to come.

02

explanation

Individuals focus on the possible future developments of the Fed since it is based on that they structure their choices of ventures, reserve funds, wage climbs, requests and so on.

It is in the actual idea of the monetary specialists to benefit from the accessible data and past data to frame their assumptions.

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Most popular questions from this chapter

Suppose that each 0.1percentage point increase in the equilibrium interest rate induces a \(5billion decrease in real planned investment spending by businesses. In addition, the investment multiplier is equal to 4, and the money multiplier is equal to 3. Furthermore, every \)9billion decrease in money supply brings about 0.1-percentage-point increase in the equilibrium interest rate. Use this information to answer the following questions under the assumption that all other things are equal.

a. How much must real planned investment decrease if the Federal Reserve desires to bring about an $80billion decrease in equilibrium real GDP ?

b. How much must the money supply change for the Fed to induce the change in real planned investment calculated in part (a)?

c. What dollar amount of open market operations must the Fed undertake to bring about the money supply change calculated in part (b) ?

Consider the data in Problem 16-10. Suppose that the money supply increases by $ 100 billion and real GDP and the income velocity remain unchanged.

a. According to the quantity theory of money and prices, what is the new equilibrium price level after full adjustment to the increase in the money supply?

b. What is the percentage increase in the money supply?

c. What is the percentage change in the price level?

d. How do the percentage changes in the money supply and price level compare?

Explain how the Federal Reserve has implemented a credit policy since 2008.

Take a look at Figure 16-6. Suppose that a multiple reduction in GDP is the final outcome that the Fed desires in the last box in the figure. Explain the required directions of efforts - that increases or decreases - that most occur in the preceding boxes in the figure in order to yield in this desired decrease in real GDP

Consider the two panels of Figure 16-2. Suppose that instructions in the latest FOMC Directive call for a monetary policy action aimed at pushing down the rate of interest prevailing in the economy. Use the appropriate panel of the figure to assist in explaining whether officials at the Federal Reserve Bank of New York's Trading Desk should buy or sell existing bonds.
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