Question

1-Explain how the central bank conduct monetary policy by targeting the federal fund rate, and through open market operation.

2- Explain the non-conventional monetary policy: the quantifying easining.

3-Briefly talk about the differences between monetarist monetary policy and Keynesian monetary policy.

answer this question hurry up plz

Answer 1

Q1) The Federal funds rate is the rate at which the commercial banks make overnight loans to other depository institutions. The FOMC sets the interest rate target in its bimonthly meeting. Now if the federal funds rate target is cut, it represents an expansionary monetary policy and if the target is raised, it it represents a contractionary monetary policy. The target is achieved by buying and selling of government bonds through open market operations. If the central bank has to cut the rates, it purchases government bonds that infuses money into the system and money supply increases. As a result, the rates are cut. If the central bank has to raise the rates, it sells government bonds that reduces money from the system, and money supply decreases. As a result, the federal funds rate increase.