Chapter 16: Q.16.1 Learning Objectives (page 349)
Identify the key factors that influence the quantity of money that people desire to hold.
key factors are precautionary, transaction, and speculative motives.
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Describe how Federal Reserve monetary policy actions influence market interest rates
Take a look at Figure 16-6. Suppose that a multiple reduction in GDP is the final outcome that the Fed desires in the last box in the figure. Explain the required directions of efforts - that increases or decreases - that most occur in the preceding boxes in the figure in order to yield in this desired decrease in real GDP
Consider figure 16.3, Discuss a policy action that trading desk at the federal reserve bank of New York could undertake in order to generate the decrease in aggregate demand displayed in this figure
Imagine working at the Trading Desk at the New York Fed. Explain whether you would conduct open market purchases or sales in response to each of the following events. Justify your recommendation.
a. The latest FOMC Directive calls for an increase in the target value of the federal funds rate.
b. For a reason unrelated to monetary policy, the Fed's Board of Governors has decided to raise the differential between the discount rate and the federal funds rate. Nevertheless, the FOMC Directive calls for maintaining the present federal funds rate target.
Consider figure 16-7. Discuss a specific monetary policy action that Fed's Trading Desk could implement in order to induce the effects traced out by this figure.
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