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.
When a tax on goat cheese is completely paid by consumers via higher prices, then the tax has been: (i) alleviated. (ii) Forward shifted. (iii) Backward shifted. (iv) Actualized. (v) Randomized. Can someone help me in getting throu
DISCUSS the experience of high GNP countries and low GNP with regard to PQLI.
With the general equilibrium framework in place, the stage is now set for introducing fiscal and monetary changes and analysing their effects on the general equilibrium. We will first introduce a fiscal change in the form of increase in deficit-financed expenditure, a
In what respect foreign trade will be helpful in eliminating the adverse economic influences of deficient demand? Answer: Export increases the demand for services a
What do you mean by the term Competitive market?
What are the strength and weakness of using per capital national income? give explained answer for query
Can someone please help me in finding out the accurate answer from the following question. Typical Washington bureaucrats derive the maximum consumer surplus from: (1) Publicity in the Senate hearings. (2) Consuming the water. (3) Writing complex regulation. (4) Eatin
Devaluation means decrease in the external value of a country’s currency as an aware policy measure adopted by the Government of a country. In another words, we make our currency less costly in terms of foreign currency. This builds our goods ch
Elucidate the concept of deflationary gap. Answer: Deflationary gap is the deficit in aggregate demand from the level needed to maintain full employment equilibrium
Question: Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading. Include in your answer why solutions to the problem will necessarily involve a decision about which
18,76,764
1926111 Asked
3,689
Active Tutors
1460458
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!