Explain the differences between using the monetary base versus federal funds rate as the monetary policy instrument. Which does the Fed use as its instrument?
What will be an ideal response?
Monetary policy can use either the monetary base or the federal funds rate as its instrument. The monetary base is the sum of Federal Reserve notes, coins, and banks' deposits at the Fed. The federal funds rate is the interest rate banks charge each other to borrow reserves. If the Fed targets the monetary base, the federal funds rate fluctuates to reach equilibrium. If the Fed targets the federal funds rate, the monetary base fluctuates in response to changes in the demand for it. The Fed cannot target both the monetary base and the federal funds rate simultaneously. The Fed uses the federal funds rate as its monetary policy instrument.
You might also like to view...
If the demand for a good is highly elastic, that good is likely to have:
A. many close substitutes. B. many close complements. C. few close substitutes. D. few close complements.
Traditionally, men have been more willing to accept jobs that
a. required continuous employment in the labor force. b. require relocation if necessary to get a higher paying job. c. have long working hours. d. All of the above are correct.
One worker produces 5 rocking chairs. To produce 10 rocking chairs it will be necessary to hire more than two workers, if diminishing returns have set in.
Answer the following statement true (T) or false (F)
Refer to the information provided in Table 13.1 below to answer the question(s) that follow. Table 13.1Price ($)Quantity4.002,0003.502,4003.002,8002.503,2002.003,6001.504,0001.004,400Refer to Table 13.1. If a monopoly faces the demand schedule given in the table, what is its marginal revenue from the 4,000th unit it sells?
A. -$3 B. $1.50 C. $3 D. $1,200