You are the managing director of a small local bank. The Fed announces that it is moving its federal funds rate target from 2.25% up to 3.0%. a. The increase in the federal funds rate will the interest rates on the business lines of credit and personal loans you make. What would have to happen for you to also change the interest rate you charge on longer-term loans such as mortgages or business loans? b. You would change long-term rates if you do not believe the federal funds rate will actually change. you believe the change in the federal funds rate will be temporary. you believe the change in the federal funds rate will be long-lasting.
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The increase in the federal funds rate will likely increase the interest rates on the business lines of credit and personal loans you make. This is because the federal funds rate serves as a benchmark for other interest rates in the economy. When the federal funds Show more…
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When the Fed sells bonds in open-market operations, it decreases the money supply. If the Fed wants to decrease the money supply, it can raise the reserve requirement. If the Fed wants to increase the money supply, it can reduce the interest rate it pays on reserves. When the FOMC increases its target for the federal funds rate, the money supply will decrease. If people decide to hold less currency after a rash of pickpocketing, the money supply will decrease.
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'Suppose, the immediate response to an announcement by the Federal Reserve is investors in Treasury securities believe that the Fed will be increasing interest rates exactly as they expected to contain inflationary pressures: Everything else held constant; this would cause in long-term Treasury prices and in long-term Treasury yields: Select one: A. an increase; an increase B. a decrease; a decrease C. a decrease; an increase D. no change; no change E. an increase; a decrease'
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