Questions from Financial Markets

Q: Consider a bank policy to maintain 12% of deposits as reserves

Consider a bank policy to maintain 12% of deposits as reserves. The bank currently has $10 million in deposits and holds $400,000 in excess reserves. What is the required reserve on a new deposit of $...

Q: With the onset of the global financial crisis, assets on the

With the onset of the global financial crisis, assets on the Federal Reserve’s balance sheet increased dramatically, from approximately $800 billion in 2007 to over $3 trillion in 2013. Many of the as...

Q: Why was the Term Auction Facility more widely used by financial institutions

Why was the Term Auction Facility more widely used by financial institutions than the discount window during the global financial crisis?

Q: What are the advantages and disadvantages of quantitative easing as an alternative

What are the advantages and disadvantages of quantitative easing as an alternative to conventional monetary policy when short-term interest rates are at the zero-lower-bound?

Q: Why is the composition of the Fed’s balance sheet a potentially important

Why is the composition of the Fed’s balance sheet a potentially important aspect of monetary policy during a crisis?

Q: What are the main advantage and the main disadvantage of an unconditional

What are the main advantage and the main disadvantage of an unconditional policy commitment?

Q: What incentives arise for a central bank to fall into the time

What incentives arise for a central bank to fall into the time-inconsistency trap of pursuing overly expansionary monetary policy?

Q: “Because inflation targeting focuses on achieving the inflation target, it

“Because inflation targeting focuses on achieving the inflation target, it will lead to excessive output fluctuations.” Is this statement true, false, or uncertain? Explain your answer.

Q: “The zero-lower-bound on short-term interest

“The zero-lower-bound on short-term interest rates is not a problem, since the central bank can just use quantitative easing to lower intermediate and longerterm interest rates instead.” Is this state...

Q: If higher inflation is bad, then why might it be more

If higher inflation is bad, then why might it be more advantageous to have a higher inflation target than a lower target closer to zero?