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.
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Refer to the scenario above. Jack will derive ________ units of utility if both of them try to move the tree
A) 5 B) -5 C) -2 D) 10
Suppose that you have wheat in storage and that the price of wheat is currently $5.00 per bushel. You can sell your wheat immediately but you also have an opportunity to sell in six months. At that time, you believe the price of wheat will be $5.60 per bushel. Your cost of storage is $0.75 per bushel for six months. One dollar in six months is worth one dollar today (no discounting). What strategy is profit maximizing?
A. Hold onto your wheat and sell in six months. B. Sell your wheat today. C. Minimize your losses by exiting the wheat market. D. Expand production to sell more wheat.