Methods that FED can use to make money
What are the four methods that FED can use to make money? What are the most powerful one and what technique the FED to create a gradual easing of the money supply either created or destroyed most seldom uses?
Expert
The four ways in which FED can create money are
• Open Market Operations purchase: This refers to the Federal Bank purchasing government securities in the open market, so that they can increase the reserves of the banks, which can in turn use these reserves to make loans, thus creating new money in the economy,
• Decrease in Required Reserve ratio: It is mandatory for all banks to keep a certain amount of deposits with the Federal Bank as a measure of safety. On reduction of these requirements, banks can keep less with Fed and lend more, thus creating money in the economy,
• Decrease in interest/discount rates: When interest rates are lowered, it leads to money being cheaply available, which will hence push banks to lend more or people to obtain more loans, thus improving money supply in the economy and
• Quantitative easing: This is the creating of a considerable amount of money by the Fed through its purchase of assets such as long-term government bonds, company bonds, stocks, asset backed securities, etc that it normally does not buy. This improves bank reserves, which are used to lend loans, thus creating money in the economy.
In reality, changing the reserve ratio is a heavy-handed approach and hence it is an infrequently used approach. Quantitative easing is also employed only when lowering the discount rate is not effective any more as the interest rates have already been reduced to or very near to zero percent. The Fed normally uses lowering the discount rate to gradual ease the money supply, after which it utilizes the open market operations approach. Thus the Fed most often uses the discount rate change approach. Only if this approach does not function as expected, the other methods are employed.
I have a problem in economics on Price ratios and marginal utility ratios. Please help me in the following question. The efficiency in consumption needs equality of: (i) Income distribution. (ii) All product price and resources. (iii) MC and MR. (iv)
Between 1961 and 2007, the rising share of the Canadian population in paid employment contributed to rising GDP per person. But suppose that the share of the Canadian population in paid employment had remained constant between 1961 and 2007. What would Canadian GDP pe
How does an internally held public debt differ from an externally held public debt?
Macro Economics: Macro economics studies the economy as an entire.
Examples of command economies are: a) the United States and Japan b) Sweden and Norway c) Mexico and Brazil d) Cuba and North Korea
Use economic theory to explain the inflation movements and factors influencing it. Use relevant models to explain the impact of changes in fiscal and monetary policies in curtailing inflation.
What relationship does the MPC bear to the size of the multiplier? The MPS? What will the multiplier be when the MPS is 0, .4, .6, and 1
I have a problem in economics on Consumer Surplus-Difference consumer willing to pay and what actually pay. Please help me in the following question. The consumer surplus signifies to the difference among the: (i) Satisfaction of wealthy people and th
Describe whether the sale of old scooter is comprised in national income?
An illustration of how marginal utility diminishes takes place when: (1) Derek finds it tough to laugh politely when he hears a “new” joke for the fourth time now. (2) Amy Sue chooses she would instead have 150 hogs than 151 on her pig far
18,76,764
1943006 Asked
3,689
Active Tutors
1443045
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!