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Chapter 16: Q.16.2 Learning Objectives (page 349)

Describe how Federal Reserve monetary policy actions influence market interest rates

Short Answer

Expert verified

Federal Reserve monetary policy actions influence market interest rates by setting discount rates, opening market operations, and setting reserve requirements.

Step by step solution

01

introduction

The monetary policy implies the moves made by the Federal Reserve in regards to value dependability, work and moderate long haul loan fees.

02

explanation

1. Setting reserve requirements implies indicating how many actual assets that banks should hold for possible later use against their store record and it additionally decides the most extreme sum that the banks can raise through advances and speculations.

2. Open market operations allude to trading the US government protections in the monetary market to impact the degree of stores in the financial framework. The degree of stores will impact the loan fees.

3. Setting the discount rate and financing cost are paid by the bank on momentary advances from Federal Reserve Bank. These rates are typically lower than the government finances rate.

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Most popular questions from this chapter

You learned in an earlier chapter that if a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. In this chapter, you learned that the Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand.

a. Propose one monetary policy action that could eliminate the recessionary gap in the short run.

b. In what way might society gain if the Fed implements the policy you have proposed instead of simply permitting long-run adjustments to take place?

Take a look at the two panels of figure 16.2, and also consider figure 16-1. Suppose that instructions in the latest FOMC Directive call for a monetary policy action aimed at inducing individuals & businesses to demand a smaller quantity of money. Use appropriate panel of figure 16-2 to assist in explaining whether officials at the Federal Reserve Bank of New York's Trading desk should buy or sell bonds.

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

If the FOMC were to aim to attain targets for M1 or M2 instead of the federal funds rate, would people be as concerned with trying to anticipate future federal funds rate changes? Explain.

Explain why the net export effect of a contractionary monetary policy reinforces the usual impact that monetary policy has on equilibrium real GDP per year in the short run.
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