Question

The Fed has pledged to support smooth market functioning and effective transmission of monetary policy.

(a) Discuss how the Fed may use reserve ratio to implement an expansionary monetary policy.

(b) Explain why the Fed’s balance sheet has reduced in 2018-2019. How would you expect the trend of Fed’s asset size in the coming months?

(c) What are the three statutory objectives for monetary policy set by the Fed?

(d) What is IOR? How does it affect the fed funds rate?

Answer 1

a) Federal Reserve may utilize save proportion to implement an expansionary monetary policy by diminishing the save proportion for business banks in the economy and it would prompt increment in cash gracefully in the economy in light of the fact that the bank are required to keep up a lower save proportion.

When there is a need to keep up lower save proportion the bank are left with more money to loan to borrowers in the economy and it will expand the cash gracefully in to the economy living into an expansionary monetary policy

b) Federal Reserve monetary record has decreased in earlier year becauseit has sold its accounting report protections or it has stopped to reinvest the developing securities.I expect the asset report of Federal Reserve to shrivel further in coming months since it should loan more as the economy have eased back down and it should create the cash flexibly in the economy by bringing down the financing costs.

C) three legal target which has been set by federal save are most extreme practical work in the economy and stable costs in the economy alongside moderate long haul loan costs.

D) enthusiasm on save is the rate at which Federal Reserve pay enthusiasm on save adjusts which are held by business banks so if the Federal Reserve needs to diminish the store rate it should decrease the enthusiasm on hold.

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