Question

After every​ meeting, the Federal Open Market Committee​ (FOMC) releases a statement that summarizes their policy decisions.

​"Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent​ months, and the housing sector has improved​ further; however, net exports have been soft.​ Overall, taking into account domestic and international​ developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee judges that there has been considerable improvement in labor market conditions this​ year, and it is reasonably confident that inflation will​ rise, over the medium​term, to its 2 percent objective. Given the economic​ outlook, and recognizing the time it takes for policy actions to affect future economic​ outcomes, the Committee decided to raise the target range for the federal funds rate to​ 1/4 to​ 1/2 percent. The stance of monetary policy remains accommodative after this​ increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds​ rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent​ inflation."

Based on the information​ above, which of the following factors were considered by the committee in making their​ decision?

A.

Employment level and government spending in the economy

B.

The inflation rate and the level of employment l in the economy

C.

The inflation rate and the level of government spending in the economy

The factors inflation and employment relate

▼

directly

indirectly

to the Federal​ Reserve's mandate.

In the​ meeting, the FOMC decided to raise the target range for the federal funds rate to 0.25 to

nothing

percent. ​(Round your response to the nearest two decimal​ places)

The committee used open market operations to reach its new goal. ​(Select all that​ apply)

Which of the following open market operations would move the federal funds rate in the desired​direction?

A.

A decrease in the supply of reserves by selling bonds to private banks

B.

An increase in the supply of reserves by selling bonds to private banks

C.

An increase in the supply of reserves by buying bonds from private banks

D.

A decrease in the supply of reserves by buying bonds from private banks

The adjacent graph shows the initial equilibrium in the federal funds market.

​1.) Using the line drawing​ tool, show the effect of a decrease in the supply of reserves in the market for bank reserves.

​2.) Using the point drawing

tool​,

label the new equilibrium in the federal funds market. Label the new equilibrium as

r Subscript newrnew.

Carefully follow the instructions​ above, and only draw the required

objects.

A decrease in the supply of reserves by selling bonds to private banks will lead to​ a(n)

▼

increase

decrease

in the real interest​ rate, ​a(n)

▼

increase

decrease

in the level of​ employment, and ​a(n)

▼

increase

decrease

  in the growth of the money supply.

Answer 1

1- Based on the information​ above, the following factors were considered by the committee in making their​ decision:

B.The inflation rate and the level of employment in the economy

2- The factors inflation and employment relate

directly to the Federal​ Reserve's mandate.

inflation increases employment also increases and when inflation decrease employment level also decreases. In short, inflation and unemployment are indirectly related while inflation and employment are directly related.

3- In the​ meeting, the FOMC decided to raise the target range for the federal funds rate to 0.25 to

0.50 %

as they decided to raise federal fund rate to 1/4 = 0.25% to 1/2 = 0.50 %

4-  the following open market operations would move the federal funds rate in the desired​ direction?

C.An increase in the supply of reserves by buying bonds from private banks

buying bonds from private banks will increase the supply of reserves in the private banks and they will have more money for loans and investments it will increase money supply in the economy inflation rate and employment will also increase.

*there is no graph shown in the question