Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts? Instructions: Enter your response as a whole number.

Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts? Instructions: Enter your response as a whole number.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 8QP

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Similar questions

If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which this will cause interest rates to rise.
Fed Cuts Key Interest Rate Again Washington, DC—Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. If every one-point change in the federal funds rate alters aggregate demand by $180 billion, how far would AD shift in response to the interest rate cuts?
A news website might have this headline: “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent.” A more detailed account of the Fed’s action would say: “Today the Fed told its bond traders to sell enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” “Today the Fed told its bond traders to buy enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.”
ces Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts? Instructions: Enter your response as a whole number.…
QUESTION 12 The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. O True O False QUESTION 13 What happened to the discount rate in January 2003 and why? Read this article from the Federal Reserve to find the answer. The discount rate moved below the fed funds rate because fewer banks wanted to borrow from the Fed anymore The discouunt rate became equal to the fed funds rate because the bank lending programs were merged into one The discount rate moved above the fed funds rate so any sound financial institution could borrow from the Fed and to eliminate the perception banks were being subsidized O All of the above None of the above QUESTION 14 What is the most important change in the fed funds rate since the Financial Crisis began in 2007? O it is much lower and has been essentially zero percent (0%) most of the time O It has become much more variable (ups and downs) O It no longer increases shortly before a recession (gray shaded…
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Part 1: Which of the following Fed actions will increase bank lending? Select one or more answers from the choices shown. The Fed raises the discount rate from 5 percent to 6 percent. The Fed raises the reserve ratio from 10 percent to 11 percent. The Fed buys $400 million worth of Treasury bonds from commercial banks. The Fed lowers the discount rate from 4 percent to 2 percent. (Helpful info)Note that Fed sets a discount rate that it charges to banks for short-term loans, which then contributes to the rate that the banks charge customers on their loans. While the Fed has the ability to issue Federal Reserve Notes, the paper currency used in the U.S. monetary system, they do not print the money. That task is still performed by the U.S. Mint. After the financial crisis of 2007-2008, Congress increased the Fed’s supervisory powers. Part 2: Describe tools that the US Treasury and the Federal Reserve use to undertake restrictive monetary policy today (versus before the…
Predict what will happen to interest rates on a corporation’s bonds if the federal government guaranteestoday that it will pay creditors if the corporation goesbankrupt in the future. What will happen to the interestrates on Treasury securities?
While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows: “Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” “Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent.”
Which of these statements are true? The discount rate is normally equal to the federal funds rate. The federal funds ratre is normall higher than the discount rate. The Federal Funds rate is the rate that banks are charged when they borrow from the Fed. O The discount rate is normally higher than the federal funds rate.