Suppose, one morning the Open Market Trading Desk drastically underestimates the demand for reserves when deciding the quantity of reserves to supply to the market. Based on analysis of the market for bank reserves, explain why the market federal funds rate will not exceed the discount rate regardless of the size of the gap between estimated and actual reserve demand
Answer to relevant QuestionsSuppose the Federal Reserve did not pay interest on excess reserves. How would the reserve demand curve differ from that in Figure? The charge given by Congress to the Federal Reserve is to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Discuss whether the Taylor rule conforms to this ...Based on the liquidity premium theory of the term structure of interest rates, explain how forward guidance about monetary policy can lower long-term interest rates today. Be sure to account for both future short-term rates ...Inflation is expected to rise when the Taylor Rule persistently and significantly exceeds the federal funds rate. Conversely, inflation is expected to decline when the federal funds rate exceeds the rule. Using the same ...Explain why a consensus has developed that countries should either allow their exchange rates to float freely or adopt a hard peg as an exchange-rate regime?
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