If cash deposits with the Fed are expected to increase, the manager of the trading desk at the Fed Bank of New York will likely perform open market operations with ________ The European System of Central Banks _________ pays interest on deposit reserves. Indicate whether the following statement is true or false and explain why: “A cut in the discount rate always results in a cut in the Federal Reserve`s key rate.” Everything else is kept constant when the federal funds rate _________ is the interest rate paid on reserves, the amount of reserves required increases when the federal funds rate _________ There are two types of open market operations: ______ Open market operations aim to change the amount of reserves and the monetary base, and _____ Open market operations are intended to offset movements of other factors affecting the monetary base. Explain dynamic and defensive open market operations. What is the purpose of each type? Describe two situations in which defensive open market operations are used. How are open market defensive operations generally carried out? A financial panic was avoided in October 1987 after “Black Monday”, when the Fed announced that everything else in the reserves market remained constant when the policy rate is 3%, which reduces the discount rate from 5% to 4% In the reserves market, a lower interest rate is paid for excess reserves Answer: The three instruments are open market operations, the purchase and sale of government bonds; discount policy, control of the price and quantity of discount credits granted to banks; and reserve requirements, which set the percentage of deposits that banks must keep in reserve. Open market operations and the discount rate affect the monetary base and reserve requirements affect the monetary multiplier. If the Fed wants to temporarily bring reserves into the banking system, it will participate in everything that is kept constant, in the reserve market, increases in the discount rate will affect the federal funds rate of Everything else, which is kept constant, in the reserves market, if the demand for federal funds crosses the reserve supply curve along the horizontal section. Increase in the discount rate The Federal Reserve will take a retirement activity if it wants to have reserves ____ in the banking system. The opportunity costs for managing excess reserves are the federal funds rate, at a certain federal funds rate there is an excessive demand for reserves in the federal funds market. If the Fed wants the federal funds rate to remain at this level, it should achieve an open bond market, everything else maintained. However, if the Fed does nothing, the federal funds rate _______ If the federal funds rate matches the interest rate paid for excess reserves Answer: False. Because the discount rate is higher than the federal funds rate, a reduction in the discount rate only results in a decrease in the federal funds rate if the discount rate is brought below the original level of federal funds. If the decline in the discount rate is such that the new interest rate remains higher than the Federal Funds rate, then the Federal Funds rate does not change, everything else remains constant.
The Fed`s commitment to keep the policy rate at zero for a long period of time has been to subject the policy rate to reserve requirements since 1980. . . .