Suppose the target range for the federal funds rate is 1.5 to 2 percent but that the equilibrium federal funds rate is currently 1.7 percent. Assume that the equilibrium federal funds rate falls (rises) by 1 percent for each $150 billion in repo (reverse repo) bond transactions the Fed undertakes. If the Fed wishes to lower the equilibrium federal funds rate to the bottom end of the target range, will it repo or reverse repo bonds to non-bank financial firms? How much will it have to repo or reverse repo?
Instructions: Enter only positive numbers to show change in the rate.
repo OR reverse repo Correct
bonds worth ____ billion