How is the Fed moving to Quantitative Easing different from what they were doing before when they lowered the FFR?
Not designed to lower the FFR and in much larger volume
100
What does excessive money supply growth cause?
Inflation
100
When The Fed changes policy, how long does it take for output to change?
6 months to a year
200
What happened to ER’s (Excess Reserves) in the system?
Up by $2.5 Trillion
200
Inflation occurs when MS grows faster than ?
Output (Q)
200
When The Fed changes policy, how long does it take for inflation rate to change?
2-3 years
300
Why is it unusual for the ER in the system to be up by $2.5 trillion?
ER's are usually very low
300
Excessive MS causes inflation which makes MS growth and inflation what?
Very strong and positive
300
Today’s inflation rate was determined by MS growth when?
2-3 years ago
400
What is the reason The Fed has to find a new way to raise the FFR?
Quantitative Easing created such massive amount of reserves ($2.4 Trillion) that normal selling of T-Bills will not affect the FFR. (i.e. Soaking up the ocean with a sponge)
400
Countries with rapid MS growth have high inflation rates or output growth rates?
High Inflation, Output growth still always depends on labor force and labor productivity
growth
400
Slower AD is caused by what and what?
Slower MS growth and higher interest rates
500
In order to raise the FFR, The Fed is going to increase what other interest rate?
The rate it pays to banks on their ER’s
500
When The Fed changes policy, how long does it take for interest rates to change?