Explain the effect on the monetary base of the following actions by the Fed.
Explain the effect on the monetary base of the following actions by the Fed.
a. The Fed builds a new annex to its headquarters in Washington
b. Foreign central banks increase their account holdings at the Fed.
3. Draw a supply-demand diagram for the market for reserves to answer each of the following questions.
a. Draw a graph showing an increase in the discount rate which increases the federal funds rate.
b. Show the effect of an increase in currency holding by the public on the federal funds rate.
c. Draw a graph showing the effect of a one percent increase in the interest rate on excess reserves which increases the federal funds rate by one-half percent
d. Show the effect of a decrease in the reserve requirement by the Federal Reserve
4. Estimate what the current federal funds rate would be using the Taylor rule. Assume that the inflation rate is 7%, the target inflation rate is 2%, the equilibrium real interest rate is 0.5%, potential GDP is $20,000 and actual GDP is $20,500
5.
a. Which nonconventional policy tool attempts to lower long-term interest rates by affecting expectations of short-term interest rates?
b. Which nonconventional monetary policy tool causes large changes in the monetary base?
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