Suppose banks incur heavy losses and become more cautious, increasing their demand for reserve. Make use of a graph of the loanable funds market to show how the Fed can use open market operations to maintain the same federal funds rate
What will be an ideal response?
The Fed will conduct open market purchases, increasing the supply of reserves by a sufficient amount to ensure that the federal funds rate remains at its current rate.
You might also like to view...
The FOMC is concerned about inflation and has ________ the federal funds rate. Due to substitution effects, other ________ interest rates will ________ almost immediately
A) increased; short-term; increase B) decreased; short-term; decrease C) increased; long-term; increase D) decreased; long-term; decrease E) increased; short-term; decrease
When price was 10, quantity demanded was 50. When price increased to 12, quantity demanded decreased to 40. Therefore, when price increased, total revenue
A. decreased from 500 to 480, indicating that demand is inelastic. B. decreased from 500 to 480, indicating that demand is elastic. C. increased from 480 to 500, indicating that demand is inelastic. D. increased from 480 to 500, indicating that demand is elastic.