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Chapter 16: Q.2 (page 438)

Go to https://www.federalreserve.gov/releases/h15/. What is the current federal funds rate? What is the current Federal Reserve discount rate? (Define this rate as well.) Have short-term rates increased or decreased since the end of 2008?

Short Answer

Expert verified

The federal funds rate has increased since the end of 2008. The federal reserve discount rate has increased since the end of 2008.

Step by step solution

01

Concept Introduction 

The federal funds rate is the rate at which commercial banks provide loans to each other. The federal discount rate is the rate at which the federal reserve provides loans to commercial banks. These rates also serve as tools to control the money supply.

02

Explanation

The effective federal funds rate on April 11, 2022, was 0.33.

The effective federal funds rate at the end of 2008 was 0.14.

The current federal reserve discount rate for the second week of April 2022, was 0.25.

The current federal reserve discount rate at the end of 2008 was 0.50.

The federal funds rate has increased since the end of 2008. The federal reserve discount rate has increased since the end of 2008.

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Most popular questions from this chapter

Following the global financial crisis in 2008, assets on the Federal Reserve’s balance sheet increased dramatically, from approximately \(800 billion at the end of 2007 to over \)4 trillion today. Many of the assets held are longer-term securities acquired through various loan programs instituted as a result of the crisis. In this situation, how could reverse repos (matched sale–purchase transactions) help the Fed reduce its assets held in an orderly fashion, while reducing potential inflationary problems in the future?

What is the main rationale behind paying negative interest rates to banks for keeping their deposits at central banks in Sweden, Switzerland, and Japan? What could happen to these economies if banks decide to loan their excess reserves, but no good investment opportunities exist?

Suppose your country is concerned about inflation and has set a target rate for the year. The government believes that targeting inflation is the most important role of monetary politics. The central bank is responsible for targeting inflation. What is the main tool that central banks can use for inflation targeting? Will this tool be enough?

“The federal funds rate can never be above the discount rate.” Is this statement true, false, or uncertain? Explain your answer.

“Discount loans are no longer needed because the presence of the FDIC eliminates the possibility of bank panics.” Is this statement true, false, or uncertain?
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