Question

Suppose the FOMC has decided the target federal funds rate to be 1%. If due to...

Suppose the FOMC has decided the target federal funds rate to be 1%. If due to an increase in seasonal demand for loans, the effective Federal Funds rate is 1.25%. What kind of open market operations will the New York federal reserve conduct?

a) Open market purchases or sales?

b. Dynamaic or defensive operations?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a) The current interest rate is below the target rate and so what is needed is an increase in the money supply level. For this to happen we need an open market purchase that we buy away bonds from the economy and hence increase the money supply level thus reducing the interest rates. An open market purchase is thus needed here.

b) The operations needed here will be defensive operations as it is one time, the idea is to push back the interest rates to the 1% level because of a seasonal demand for loans. Thus what is needed is a one time strategy here not a dynamic one.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Federal Funds target range set by the FOMC is 2- 2.25%. Suppose due to temporary...
The Federal Funds target range set by the FOMC is 2- 2.25%. Suppose due to temporary market changes, the Federal Funds rate in the market decreases to 1.70%. The Fed wants to keep the federal fund rate in the target rage. a. If the banking system has limited reserves, what kind of open market operations (purchases or sales) will the Fed use? b. Are these open market operations considered dynamic or defensive? Why? c. If the banking system has ample...
Suppose that the Federal Reserve sets its target for the federal funds rate at a range...
Suppose that the Federal Reserve sets its target for the federal funds rate at a range of 0.25 to 0.50 percent.  This means that the discount rate on primary loans will be set at _____ percent and the discount rate on secondary loans will be set at _____ percent. Select one: a. 1.25; 1.50 b. 1.00; 0.50 c. 1.00; 1.50 d. 0.50; 1.00 e. 1.50; 1.00
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and...
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and ___ the prime rate. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease e. None of the above 2. How does the Federal Reserve affect the supply of money using open market operations? a. The Fed increases the reserve requirements of bank and thus banks must obtain additional funds from the Fed. b. The Fed buys government bonds from banks, which...
You are given the following information about the market for reserves. The current federal funds rate...
You are given the following information about the market for reserves. The current federal funds rate is 1.5%, the discount rate is 1.75%, the interest rate paid on reserves is 1.25%, and the Fed owns $350 billion in government securities. Are there any discount loans outstanding? Why or why not? Suppose the increase in economic activity meant that banks started to increase their lending to businesses. Banks are making loans rather than holding extra cash. Select all that apply. Question...
The FOMC is concerned about inflation and has ________ the federal funds rate. Due to substitution...
The FOMC is concerned about inflation and has ________ the federal funds rate. Due to substitution effects, other ________ interest rates will ________ almost immediately. A. increased; short-term; decrease B. increased; long-term; increase C. decreased; long-term; decrease D. decreased; short-term; decrease E. increased; short-term; increase
The Federal funds rate is: The interest rate that banks charge one another for short-term (typically...
The Federal funds rate is: The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system increases, banks' need to borrow from each other rises , and the federal funds rate increases. The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of...
The Federal Open Market Committee decided that the federal funds rate should be 1.5-1.75% rather than...
The Federal Open Market Committee decided that the federal funds rate should be 1.5-1.75% rather than the current rate of 1.75-2%. The appropriate open market action is to _____ Treasury bills to _____ money _____. purchase; increase; demand purchase; increase; supply sell; decrease; demand sell; decrease; supply
When the Federal Reserve conducts Open Market Sales, it - raises the effective federal funds rate...
When the Federal Reserve conducts Open Market Sales, it - raises the effective federal funds rate - lowers the effective federal funds rate - lowers the effective discount rate -raises the effective discount rate.
the official Wed site of the Federal Open Market Committee (FOMC) of the Federal Reserve Board....
the official Wed site of the Federal Open Market Committee (FOMC) of the Federal Reserve Board. Scroll down the page and choose the link to one of the most recent statements from FOMC meetings. In your initial response to the topic you have to answer all questions: Define the Federal Funds Rate. What is the current Federal Funds Rate? Define the Federal Reserve Discount Rate. What is the current Federal Reserve Discount Rate? What are the factors cited in this...
If the federal funds rate is below its target, the Fed is likely to want to...
If the federal funds rate is below its target, the Fed is likely to want to ___ securities in the open market, which will cause the federal funds rate to ____. -buy, increase -buy, decrease -sell, increase
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT