Assignment: The Multiplier Effect
1. Go to "FRB: Press Release-FOMC statement-December 16, 2009."
2. You should now find a press release from the Board of Governors of the Federal Reserve System, dated December 16, 2009, which discusses the decisions of the Federal Open Market Committee (FOMC) for that date.
This release also states that the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. Additionally, the release states that the FOMC has decided to gradually reduce "the pace" of such Fed purchases. Discuss why you believe that the FOMC has made such a decision, and explain the consequences of such a decision on the economy.
In your answer, discuss the Federal Reserve's use of open-market operations to influence the money supply and the respective consequences of such actions. Include a discussion of the money multiplier effect in your response. Justify your conclusions and provide appropriate examples.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.