How is the Federal funds rate established? What role does the Federal Reserve play?
What will be an ideal response?
The Federal funds rate is established in the market for overnight excess reserves held by banks. It is based on the supply and demand for excess reserves. The Federal funds rate has been the recent target of monetary policy. The Federal Reserve can influence the Federal funds rate by buying or selling government bonds. When the Federal Reserve buys bonds, this action increases the supply of excess reserves of banks. The Federal funds rate falls so it becomes cheaper for banks to borrow excess reserves overnight. Conversely, when the Federal Reserve seeks to increase the Federal funds rate, it sells bonds and this action reduces the excess reserves of banks. As a consequence, the Federal funds rate rises so it becomes more expensive for banks to borrow excess reserves overnight.
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Moving along a bowed-out PPF between milk and cotton, as more milk is produced the marginal cost of an additional gallon of milk
A) rises. B) does not change. C) falls. D) probably changes, but in an ambiguous direction.
In recent decades, richer countries have experienced ________ inequality, and poor countries have experienced ________ inequality.
A. decreasing; increasing B. decreasing; decreasing C. increasing; decreasing D. increasing; increasing
When demand is elastic, the absolute number for price elasticity will be
A. Equal to 1. B. Greater than 0. C. Greater than 1. D. Less than 1.
Recall the Application about craft beer and the increase in the price of hops to answer the following question(s).Hops are substitutes in the production of beer.
Answer the following statement true (T) or false (F)