This graphs the federal funds rate since1995, the shaded regions correspond to U.S. recessions.
a) Explain why the Fed decreased the federal funds rate during the last two recessions.
b) As you can see from the graph, the Fed raised the federal funds rate in 2004 up to 2006. Again, explain what might have motivated the Fed to act in such a way.
c) As you can also see from the graph, the federal funds rate has been virtually zero since 2009 (with only a small uptick recently which we can ignore here). The Fed would have liked to decrease the rate further but it wasn’t able to do so because the rate cannot become negative. In this situation, the Fed had to resort to other tools to implement its monetary policy objectives. Briefly mention some of these tools.