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Chapter 15: Q3. (page 572)

How might future actions by the Federal Open Market Committee affect the future of PayPal and similar services?

Short Answer

Expert verified

The federal open market committee might make decisions regarding getting the transactions and transfers much easier through the bank apps themselves. Thus, in that case, these third-party apps like PayPal might get affected to the extent of elimination from the market.

Step by step solution

01

Effect of the federal open market committee on future PayPal and similar services

The federal open market committee might decide to enable all the banks to transfer funds and make the transaction easier through a customized respective bank app that can be accepted anywhere. This will affect third-party services like PayPal since their service would no longer be needed if that happens since people would find it easier to access transactions through their bank's apps than from some third-party app.

Such a decision could also eliminate PayPal and similar services apps from the market.

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Most popular questions from this chapter

Which of the following will increase the opportunity cost of holding cash or reduce it? Explain.

a. In order to attract new customers, the new internet payment firm, PayBuddy, announces it will pay0.5% interest on cash balances in a PayBuddy account.

b. To attract more deposits, banks raise the interest paid on six-month CDs.

c. In an effort to increase holiday sales, stores offer one-year zero-interest deals on purchases made with store credit cards.

Suppose the economy is currently suffering from an output gap and the Federal Reserve uses an expansionary monetary policy to close that gap. Describe the short-run effect of this policy on the following.

a. The money supply curve

b. The equilibrium interest rate

c. Investment spending

d. Consumer spending

e. Aggregate output

Malia must decide whether to buy a one-year bond today and another one a year from now or buy a two-year bond today. In which of the following scenarios is she better off taking the first action? The second action?

a. This year, the interest on a one-year bond is 4%; next year, it will be 10%. The interest rate on a two-year bond is 5%.

b. This year, the interest rate on a one-year bond is 4%; next year, it will be 1%. The interest rate on a two-year bond is 3%.

Now assume that the Fed is following a policy of targeting the federal funds rate. What will the Fed do in the situation described in Question 1 to keep the federal funds rate unchanged? Illustrate with a diagram.

Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects, in the short run and in the long run (giving numbers where possible), on the following.

a. Aggregate output

b. Aggregate price level

c. Interest rate
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