Question

Thinking in terms of a supply and demand graph, how did the Financial Crisis move the...

  1. Thinking in terms of a supply and demand graph, how did the Financial Crisis move the supply of reserves?
    1. The Financial Crisis moved the supply curve left along the downward sloping demand
    2. The Financial Crisis moved the supply curve right into the flat portion of the demand
    3. The Financial Crisis moved the demand curve upward along the downward sloping supply
    4. The Financial Crisis moved the demand curve downward into the flat portion of the supply
  1. How does arbitrage ensure that the FFR does not drop too far below the IOER rate?
    1. Banks have an incentive to borrow at the FFR and deposit at the ON RRP
    2. Banks have an incentive to borrow at the IOER rate and deposit at the
    3. Banks have an incentive to borrow at the ON RRP rate and deposit at the
    4. Banks have an incentive to borrow at the FFR and deposit at the IOER
  1. Adjustments in the stance of monetary policy are communicated as a change in which of the following?
    1. FFR
    2. IORR
    3. IOER
    4. ON RRP
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Answer #1

1). The answer is: B). The Financial Crisis moved the supply curve right into the flat portion of the demand.

To help accomplish this during recessions, the Fed employs various monetary policy tools in order to suppress unemployment rates and re-inflate prices. These tools include open market asset purchases, reserve regulation, discount lending, and forward guidance to manage market expectations.

2). The answer is: A). FFR

Monetary policy is the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

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