A) In 2008, the Federal Reserve began paying interest on reserves held by banks. The interest rate they paid was greater

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A In 2008 The Federal Reserve Began Paying Interest On Reserves Held By Banks The Interest Rate They Paid Was Greater 1 (25.47 KiB) Viewed 11 times

A) In 2008, the Federal Reserve began paying interest on reserves held by banks. The interest rate they paid was greater than the federal funds rate. the interest rate banks receive from loaning their excess reserves to other banks. What effect did this policy have on the reserve-deposit ratio? Explain your answer. (5pts) B) On a graph, use the classical AS-AD model with misperceptions theory to analyze how the economy would respond in the short-run and long-run in response to the change in the reserve-deposit ratio from part A, assuming that the change to the reserve-deposit ratio was unanticipated and that the Federal Reserve does nothing to change the monetary base? What happens in the short-run and the long-run to output and the aggregate price level in the short-run and the long-run? (10pts) C) Explain how, if at all, your answer to B would change if we assumed that the change to the reserve-deposit ratio was anticipated rather than nanticipated. (5pts)