Exam 18: Monetary Policy: Stabilizing the Domestic Economy

Since 2002, the Fed has set the primary discount rate at 100 basis points above the target federal funds rate.Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

The Fed's temporary operations involve the use of:

The fact that there is a market for federal funds enables banks to:

Consider the objective of flying a jet form New York to Paris.After takeoff, a pilot would certainly check a few times to see if he or she is on course.Using this example, discuss why, at least in theory, intermediate monetary policy targets may be useful.

Unconventional monetary policy tools include all but:

The interest rate on primary credit extended by the Fed is:

The daily reserve supply curve is:

The interest rate the Fed charges for secondary credit is:

Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap) If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

Imagine the inflation rate begins to rise rapidly, the FOMC meets and it is believed that the target interest rate needed to stem the inflation could easily exceed 20 percent.Many members of the committee believe the Fed cannot announce this high of a target for political reasons.Discuss what the FOMC could do in terms of targets and what change occurred in 2002 that is going to make their job a bit more difficult.

How does credit easing alter the outlook for the economy and inflation?

To minimize the cost of holding reserves for small banks, the:

What is the difference between primary and secondary credit offered by the Fed and who would use secondary credit?