a) Total Reserve Balances Maintained with Federal Reserve Banks
b) Currency in circulation
c) Monetary Base: Total
d) Required Reserves of Depository Institutions
e) Total borrowings from the Federal Reserve
h) Velocity of M1
2. Explain how each of the following events affects the monetary base, the money multiplier, and the money supply.
a) The Fed sells bonds in the open market
b) The Fed increases the interest rate it pays banks for holding reserves
c) The Fed reduces its lending to banks
d) There are rumors about a computer virus attack on ATMs.
e) The Fed flies a helicopter on 5th avenue in New York City and drops newly printed $100 bills.
3. Describe how the Fed, the Bank of England, the Bank of Japan, and the European Central Bank have engaged in Quantitative Easing.
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.3. Describe how the Fed, the Bank of England, the Bank of Japan, and the European Central Bank have engaged in Quantitative Easing.
Quantitative easing is an alternative monetary policy to the management of the short-term uncollateralized interest rate used by central banks in order to facilitate the liquidity of money in the economy. Because the (nominal) interest rate cannot go below zero, when it becomes close to it as a result of traditional monetary policy making the further attempt to stimulate the lending impossible through credit channel, the quantitative easing can be used to inject the money into the economy through the purchase of all sorts of assets that financial institutions hold by the central bank to increase the bank reserves. There is actually difference in the nature of quantitative easing between carried out by the European Central and Bank of Japan and by the Federal Reserve and the Bank of England. The ECB and BOJ focused their programs on direct bank landings while the FED and BOE expanded their respective monetary bases by purchasing bonds.
Usually the Fed conducts its monetary policy using the purchases of U.S. government securities on the open market. Onset of the financial crisis in 2008, the Fed first prepared for the purchase of the high-quality commercial paper along other emergency policy to address the financial crisis. Next as an official QE1 program termed now, the Fed announced the purchase of government-sponsored enterprises (GSE) debt and mortgage-backed securities issued by those GSEs. QE2 was to further increase the asset purchases in long-term U.S. bonds in a name of preventing the risk of deflation. Before the launch of QE3, the Fed started a program to sell the short-term asset and buy the same amount of long-term asset to influence the yield curve. QE3 followed the same program and announced to commit the pace of asset purchase of a certain amount instead of the total amount purchase over a certain period. Later, this private asset purchase program was announced as QE to increase the monetary base to boost the money supply and meet the inflation target. The BOE financed all new assets purchase by issuing money. Within a few months the BOE’s QE almost quadrupled the U.K. monetary base....
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