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Lecture 23
Lecture 23
Lecture 23
Lectures 23/24
Lecture 24
100
To add reserves, the Fed must buy or sell T-Bills?
Buy
100
If the Fed buys T-Bills, do you add or decrease reserves from the banking system?
Add reserves
100
What does selling T-Bills do to the FFR?
The FFR goes up
100
What is the Fed's unemployment target range?
4.5-6%
100
What should the Fed holdings of Treasury Securities do every year?
Rise gradually
200
if the Fed buys T-bills, the FFR would rise or fall?
Fall
200
How do you decrease reserves from the banking system?
remove reserves
200
If the FOMC decides to raise the FFR, they tell the Open Market Operations Manager to buy or sell T-Bills?
Sell
200
When is easy money appropriate?
When unemployment is high
200
What did The Fed do to the FFR in the early stages of the financial crisis and recession?
Lowered FFR (A LOT!)
300
If the Fed buys T-Bills, what should happen to the bank loans and the MS?
They go up
300
Where does the Fed get the reserves to buy Treasuries?
Thin air
300
What is the Fed’s target inflation rate?
Between 1-2%
300
When is tight money appropriate?
When inflation is high
300
How low did the FFR go in the early stages of the financial crisis and recession?
Almost 0 - <.25%
400
If the Fed buys T-Bills, does AD go up or down?
Up
400
What does the Fed hope banks will do with the new reserves?
Lend them
400
Why does a lower rate than the target worry the Fed?
Could slip into deflation and/or stagnation
400
Why does the Money Supply (MS) need to grow in a growing economy?
To help demand grow as fast as output (Q) and a little Inflation (Inf)
400
Where is the FFR rate now?
1.25%
500
Why would the Fed buy T-Bills?
To fight unemployment
500
When the Fed sells T-Bills, what do banks give up?
Reserves
500
What does the Fed have against a higher rate?
High inflation rate increases uncertainty, this is bad for investments.
500
How does The Fed make the MS grow every year?
Buying enough Treasury securities to make reserves grow
500
After lowering the FFR as far as it could go in 2008, The Fed moved to Quantitative Easing. What is Quantitative Easing?
Purchase of large quantities of Treasury Securities