--%>
Assignment Help - homework help

The Fed can control the Fed funds rate

Question:

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate

Answer:

It is true that the Fed can control the short term interest rates through its monetary policy. However, the long term interest rates are a resultant of mainly variables which make the control of Fed over it difficult. Long term interest rates are formed by expectation which builds up over the period of time. Also, an external shock can cause investors to shift their money from short term to long term bonds or vice-versa which will affect both type of interest rate. Fed, in that case, can control the short run interest rate by monetary policy changes, but the long term rates will depend upon how the investors perceive that monetary change. Based upon their perception and expectations about the future, they decide their investment decisions which decide the long term interest rates.

 

   Related Questions in Macroeconomics

  • Q : Relationship between interest rate and

    What is the relationship among interest rate and bond prices? Is there any difference among T-Bills versus Corporate bonds in reaching your assessment? Whenever the stock market falls, where do you assume that most investor place their money and why?<

    		•
  • Q : Total revenue when price modify When

    When total revenue to a firm is unaffected by small price modifications, then demand is: (i) Relatively price elastic. (ii) Relatively price inelastic. (iii) Unitarily price elastic. (iv) Vertical. (v) Horizontal. Can someone help

    		•
  • Q : Resolving disequilibrium between the

    Assume that you consume bananas and apples, and the marginal utility of the last apple consumed is 6 times the marginal utility of last banana consumed. Though, the price of apples is only 3 times the price of bananas. This disequilibrium among the two goods can be re

    		•
  • Q : Supply use two market diagrams to

    use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges?

    		•
  • Q : Define Administrative revenue

    Administrative revenue: Administrative revenueis the revenue which occurs on account of the administrative function of government. It comprise: (a) Fees (college/school) (b) License fees paid to obtain permission to carry out a service (c) Fines and p

    		•
  • Q : Problem on full employment level of

    What happens when AD > AS past to full employment level of employment?

    		•
  • Q : Purpose of Balance of Payment Meaning:

    Meaning: - as mentioned above, the balance of payments is a periodic accounting of international economic transactions. Each country having regular economic transactions with other countries prepares periodically the final accounts of their foreign receipts and paymen

    		•
  • Q : Federal fiscal stimulus in 2009

    Question: Was the stimulus package passed in 2009 as success?  In answering this question the focus should be the articles on the syllabus, but you should also include opinions of other commentators. &nbs

    		•
  • Q : Aggregate demand if government budget

    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

    		•
  • Q : Invesstment multiplier what can be the

    what can be the minimum value of investment multiplier?

    		•