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.
What points out zero primary deficits? Answer: Zero primary deficits signify that the government has to resort to borrowings simply to make interest payments.
Describe Okun's law? Give an illustration of how it works.
DISCUSS the experience of high GNP countries and low GNP with regard to PQLI.
what can be the minimum value of investment multiplier?
Why is tax considered as revenue receipt? Answer: Since tax neither makes a liability for government nor decreases assets of the government.
Please brief the knowledge what is long run supply?
Evaluate the value of fiscal deficit when primary deficit is 53,000 crores and interest on borrowings is Rs 5,000 crores?
What stage of the business cycle is our economy experiencing at present time? proof your answer.
Substitutes: The two goods for which a rise in the price of one good leads to a rise in the demand for another.
18,76,764
1924384 Asked
3,689
Active Tutors
1458210
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!