Solve for the market clearing federal funds rate

Reference no: EM13761153

Pretend you are in charge of conducting monetary policy at the New York Fed and you have the following initial conditions.

Initial Conditions

rr/D = .10

C = 600 billion

D = 1200 billion

ER = 0

M = C + D

Given the above information (show all work on your exam sheet):

i) Calculate the MB.

ii) Calculate the money multiplier (mm).

iii) What is the money supply (use MS = mm x MB)?

10. If Rd = 300 - 40 iff, given the information above, what is the market clearing federal funds rate? Assume that this is the target for the federal funds rate. Show all work. NOTE: To calculate the market clearing federal funds rate, you first need Rs. Rs is made up of required reserves and excess reserves. Here ER=0 so to find Rs, take the value for rr/D and multiply it by the value for D. Then you will be able to solve for the market clearing federal funds rate.

In the space on your exam sheet, draw a reserve market diagram depicting exactly what is going on here! Label the equilibrium point as point A.

11. Suppose that due to whatever reason, reserve demand changes and you forecast the reserve demand to now be Rd = 260 - 40 iff. In order to keep the federal funds rate at target, what must the open market desk do? Be specific and show this development in your picture on your exam sheet (label the new equilibrium as point B).

12. Suppose the alternative, that the open market desk does nothing different, that is, they hold the amount of reserves constant. What happens in the reserve market? What is the market clearing fed funds rate now? Label this development, that is, the new equilibrium as point C. Be sure to show all work.

Reference no: EM13761153

Questions Cloud

Change in estimate-depreciation : Zebra Corp. changed from the straight-line method to the double-declining-balance method in 2015 on all its equipment. There was no change in the salvage values or useful lives.

Write paper on office of management and budgets : Write Research Paper on given topics: Office of Management and Budget's (OMB) and Federal Information Security Management Act (FISMA)

Write a paper describing the operating systems : Write a paper describing the operating systems used by Huffman Trucking

Research paper on the von neumann machine : Write a 2 page research paper on the Von Neumann machine. Use at least two resources (Wikipedia sources are not permitted) and list each resource used at the end of the paper in the reference list section.

Solve for the market clearing federal funds rate : 10. If Rd = 300 - 40 iff, given the information above, what is the market clearing federal funds rate? Assume that this is the target for the federal funds rate. Show all work. NOTE: To calculate the market clearing federal funds rate, you first need..

Various changes in principle-inventory methods : Assume that in 2015 Jonesey decided to change from the average-cost method to the FIFO method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2015 and show net income reported for 2013, 2014, and 2..

Factors affect storage speed : What factors affect storage speed?

Problem related to bmi : National indicators for obesity, as determined by the BMI report that women are more likely to have higher BMI's in comparison to men

Our government can do to address these limits : In 250 words answer this question. What are the limits to the U.S. long-term economic growth? Is there anything that our government can do to address these limits, or would it be a bad idea to try?

User Account

All Pages