Question

QE- Quantitative Easing

QE1- The first round of quantative easing during 2008/2009

3. Assume you are in the Federal Reserve who can control the monetary policy.

a. Briefly describe the FOMC.

b. Define the mechanism of Federal Open Market Operation

c. Describe and define the equilibrium of money market. Illustrate the money supply curve and money demand curve. Denote vertical and horizontal axis as well as each graph.

d. The Federal Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. What is the appropriate open market action regarding Treasury bills? Show and explain on the graph.

4. Quantative Easing question

a. Briefly describe about QE1.

b. Using both AD-AS graph and Money market graph. Illustrate what happened after the QE1 and QE2. Clearly denote all the vertical, horizontal axis, each curves as well as the equilibriums.

Answer 1

Answer 3:

a. Federal Open Market Committee ( FOMC) consists of 12 members and the main purpose of FOMC is scheduling meetings to review financial and and economic conditions, determine the appropriate stance of the monetary policy and assessing the risks associated to long run term goals of price stability and sustainable economic growth.

b. Federal open market operations refer to buying and selling of government securities in order to expand or contract the amount of money in the banking system. This is used to adjust and manipulate the federal funds rate, which is the rate at which banks borrow reserves from one another.

c.