Exam 13: The Tools and Goals of Central Bank Monetary Policy

Between July 1, 2004 and July 1, 2006 the Federal Reserve raised the federal funds interest rate by

It is considered hyperinflation when the annual inflation rate exceeds

Today many economists believe that the natural rate of unemployment is back down to its historic pattern of

Suppose the banking system's nonborrowed reserves total $48.3 billion with total legal reserves standing at $51.2 billion. What must borrowed reserves be? This morning the Federal Reserve decided to undertake the sale of $500 million in government securities through open market operations. What will be the new level of nonborrowed reserves? If interest rates don't change, what will be the new level of total reserves? What must you assume to make this calculation? If interest rates do change, which way are they likely to move?

According to your text, the Federal Reserve has de-emphasized the use of moral suasion in recent years in favor of heavier use of open-market operations.

Rather than seeking loans from the Federal Reserve's discount window, financial institutions involved in mortgage lending can borrow on a longer-term basis from:

In the open-market operation known as a runoff, if the Federal Reserve decides not to acquire new securities from the U.S. Treasury, security prices should rise and money market interest rates should fall.

If the total supply of nonborrowed reserves equals $500 million and borrowed reserves are $50 million at the current equilibrium federal funds rate (FFR) and if the supply of total reserves is described by the following equation: S=$530 million + 4 FFR, what is the equilibrium federal funds rate (FFR)? What could the central bank do to increase the federal funds rate above its current equilibrium level? How could it reduce the funds rate below its current equilibrium level?

In the 1970s and in the 1980s the natural rate of unemployment increased to 6 1/4 percent because of the

Explain how margin requirements affect the financial system. Why were these requirements instituted by the U.S. Congress during the 1930s?

What is moral suasion? Do you believe this tool can be effective?

Recent research suggests the CBOT's futures contract for Federal funds is a reliable and generally accurate (unbiased) forecaster of what the actual funds rate is likely to be.