How the Federal Reserve Works: After the Great Recession

What is a key characteristic of Quantitative Easing (QE) as implemented by the Federal Reserve?

• The Fed primarily sells short-term Treasury bills to banks.

• The Fed swaps money for assets other than short-term Treasury bills.

• The Fed increases the federal funds interest rate to reduce lending.

• The Fed focuses solely on increasing the supply of bank reserves.

How does the Federal Reserve's use of Quantitative Easing (QE) affect interest rates?

• It primarily raises short-term interest rates.

• It allows the Fed to target specific longer-term interest rates.

• It only affects the federal funds interest rate.

• It has no direct impact on mortgage interest rates.

What is the primary effect of the Federal Reserve raising the interest rate on reserves (IOR)?

• It encourages banks to lend more money to the public.

• It increases the demand for reserves by banks, making them less willing to lend.

• It directly lowers long-term interest rates for consumers.

• It reduces the overall supply of money in the economy by selling T-bills.

How does a reverse repurchase agreement (reverse repo) affect the money supply in the economy?

• It increases the amount of liquid cash available to banks.

• It encourages banks to invest more in long-term assets.

• It drains liquid cash from banks and other financial institutions.

• It is primarily used to lower short-term interest rates.