Methods that FED can use to make money
What are the four methods that FED can use to make money? What are the most powerful one and what technique the FED to create a gradual easing of the money supply either created or destroyed most seldom uses?
Expert
The four ways in which FED can create money are
• Open Market Operations purchase: This refers to the Federal Bank purchasing government securities in the open market, so that they can increase the reserves of the banks, which can in turn use these reserves to make loans, thus creating new money in the economy,
• Decrease in Required Reserve ratio: It is mandatory for all banks to keep a certain amount of deposits with the Federal Bank as a measure of safety. On reduction of these requirements, banks can keep less with Fed and lend more, thus creating money in the economy,
• Decrease in interest/discount rates: When interest rates are lowered, it leads to money being cheaply available, which will hence push banks to lend more or people to obtain more loans, thus improving money supply in the economy and
• Quantitative easing: This is the creating of a considerable amount of money by the Fed through its purchase of assets such as long-term government bonds, company bonds, stocks, asset backed securities, etc that it normally does not buy. This improves bank reserves, which are used to lend loans, thus creating money in the economy.
In reality, changing the reserve ratio is a heavy-handed approach and hence it is an infrequently used approach. Quantitative easing is also employed only when lowering the discount rate is not effective any more as the interest rates have already been reduced to or very near to zero percent. The Fed normally uses lowering the discount rate to gradual ease the money supply, after which it utilizes the open market operations approach. Thus the Fed most often uses the discount rate change approach. Only if this approach does not function as expected, the other methods are employed.
‘Must a country which is less proficient at generating all goods use import controls to decrease imports from additional countries?’
is studying economic worth your time and effort
The consumer reaches equilibrium for any two goods X and Y whenever the: (1) MUx/Px = MUy/Py. (2) MUx/MUy = Py/Px. (3) Utility from X equivalents the utility produced by Y. (4) Point of diminishing returns is arrived at. Can someon
Quantity of a good: The quantity of a good which buyers demand is found out by the price of the good, income, the prices of associated goods, expectations, tastes, and the number of buyers.
Name the institution that acts as a custodian of nation’s foreign exchange reserves? Answer: The Central Bank is an institution that acts as custodian of natio
What occurs to aggregate demand if the government budget is in deficit? Answer: The deficit budget raises the aggregate demand since the deficit budget signifies th
Describe functions of central bank? Answer: (A) Issue of currency: Central bank is the only authority for the issue of currency
I have a problem in economics on Price ratios and marginal utility ratios. Please help me in the following question. The efficiency in consumption needs equality of: (i) Income distribution. (ii) All product price and resources. (iii) MC and MR. (iv)
The consumer gains from being capable to purchase at a single price rather than paying all that the particular quantity of the good is subjectively worth are: (i) Adverse selections. (ii) Market exploitation. (iii) Consumer surpluses. (iv) Moral hazards.
what can be the minimum value of investment multiplier?
18,76,764
1955942 Asked
3,689
Active Tutors
1455835
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!