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Chapter 16: Q.23 (page 437)

If a switch occurs from deposits into currency, what happens to the federal funds rate? Use the supply and demand analysis of the market for reserves to explain your answer .

Short Answer

Expert verified

The federal funds rate will increase because of increased demand.

Step by step solution

01

Concept Introduction

Assuming there is a change from deposit to cash the bank loses holds or checkable stores and should change their save levels and the government supports rate will expand as a result of expanded request.

02

Explanation

Assuming there is a change from deposit to cash the bank loses holds or checkable deposit and should change their save levels and the government supports rate will expand as a result of expanded request.

03

Explanation

If the fed wishes to control the government supports rate the appropriate protective market activity is buy protections and increment the non-acquired holds and along these lines rearrange the bureaucratic assets rate to a lower level than if no tasks with the fed had happened.

04

:Final Answer

The federal funds rate will increase because of increased demand.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find data on nonborrowed reserves (NONBORRES) and the federal funds rate (FEDFUNDS).

a. Calculate the percent change in nonborrowed reserves and the percentage point change in the federal funds rate for the most recent month of data available and for the same month a year earlier.

b. Is your answer to part (a) consistent with what you expect from the market for reserves? Why or why not?

鈥淭he federal funds rate can never be above the discount rate.鈥� Is this statement true, false, or uncertain? Explain your answer.

If float decreases to below its normal level, why might the manager of domestic operations consider it more desirable to use repurchase agreements to affect the monetary base, rather than an outright purchase of bonds?

What is the main advantage and the main disadvantage of an unconditional policy commitment?

What is the main rationale behind paying negative interest rates to banks for keeping their deposits at central banks in Sweden, Switzerland, and Japan? What could happen to these economies if banks decide to loan their excess reserves, but no good investment opportunities exist?
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