What can the central bank of Autarkia do to lower the rate which banks charge each other for overnight loans? How will this affect the economy if it is facing a downturn?
What will be an ideal response?
The central bank of Autarkia can increase the supply of reserves. This can be done by buying government bonds from private banks. Such a transaction is referred to as an open market operation. If the central bank buys government bonds from private banks, the supply curve of reserves will shift to the right. The demand for reserves will equal the supply of reserves at a lower federal funds rate. If the federal funds rate falls, the banks will be able to make more loans. The easy availability of loans will boost economic activity in the economy.
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Trade contributes to prosperity because: a. every country lacks some vital resources that it can get economically only by trade
b. each country's climate makes it a relatively efficient producer of some goods, and an inefficient producer of other goods. c. each country's labor force makes it a relatively efficient producer of some goods, and an inefficient producer of other goods. d. of all of the above.
From the demand side, the equilibrium level of GDP is one at which
a. everyone who wants a job has one and firms are not looking for extra workers. b. the only unemployment is frictional. c. aggregate demand equals production. d. the only unemployment is cyclical.