PP_Slides_Class_20_Monday_March_31

PP_Slides_Class_20_Monday_March_31 - Good Morning! Class 20...

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Good Morning!! Class 20 Monday, March 31
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1. When bond prices go up, interest rates a. go up b. stay the same c. go down d. may go up, stay the same, or go down
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Back to the 3 tools of Monetary Policy open market operations – most important reserve requirements – seldom changed discount rate – usually moves in tandem with target Fed Funds rate Banks must meet reserve requirements every two weeks. What if bank doesn’t have enough reserves?
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2. The principal source of borrowed reserves is the a. Federal Reserve System b. United States Treasury c. federal funds market d. Federal Home Loan Board e. Federal Deposit Insrurance Corporation
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Legal Reserve Requirements for Checking Accounts, May 1, 2006
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3. The federal funds market is a. where banks borrow from the Fed b. where thrifts borrow from the Federal Home Loan Bank Board c. where one depository institution borrows from another d. the source of loans for agencies of the federal government e. the source of loans for the Federal Reserve System
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Fed is the Central Bank for US: it is the banks’ bank -banks can borrow from the Fed; pay the rate of interest on the borrowings which is called the discount rate It is a privilege and not a right to borrow from the Fed: banks seldom borrow from the Fed
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Instead banks borrow reserves in the Fed Funds Market Fed Funds is another name for reserves
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Fed Funds Market vertical axis Fed Funds rate horizontal axis quantity of Fed Funds Demand curve for Fed Funds -slopes downward -banks who need to buy reserves (relatively constant)
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Supply curve for Fed Funds -upward sloping -banks who have reserves to sell (relatively constant) AND -Fed injections and drains of reserves (OMO, these reasons FF rate changes)
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Quantity FF FF rate Supply of FF Demand for FF Fed Funds Market
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supply curve for FF shifts right, FF rate falls -if Fed does an open market sale, supply curve for FF shifts left, FF rate rises
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This note was uploaded on 04/28/2008 for the course ECON 202 taught by Professor Amsler during the Spring '08 term at Michigan State University.

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PP_Slides_Class_20_Monday_March_31 - Good Morning! Class 20...

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