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20 October, 15:54

The Federal Reserve wants to change the nominal interest rate from 4% to 6%. What action must the Federal Reserve take?

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Answers (2)
  1. 20 October, 17:33
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    The Fed needs to decrease the quantity of money by $0.4 trillion.

    Explanation:

    The Fed needs to decrease the quantity of money by $0.4 trillion. By decreasing the quantity of money, the loss of money supplied will cause the interest rate to rise because the money supply curve will shift to the left, raising the nominal interest rate.
  2. 20 October, 19:53
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    Saw this posted a few times here, want to ensure all have answers:

    The Federal Reserve, in working to change the nominal interest rate from 4% to 6%, would bring the issue to the Federal Open Market Committee and propose a 6% target to the member banks.

    Banks around the country would then put into motion plans to raise the rate to meet the Central Bank's target of 6% and may only do so after being induced by the Federal Reserve through the depositing or withdrawal of funds from the Central Bank's reserves, which is akin to the Central Bank adding or removing credit from the system.
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