Sterilized vs unsterilized intervention in the forex market: Suppose the US Fed purchases a UK security worth 200 billion UK pounds; the exchange rate is $1.2 per UK pound. a. Describe the impact of the intervention on the US Feds balance sheet, the exchange rate, and the interest rate in the absence of sterilization. Illustrate your answer with the Feds T-account and the forex market diagram. b. How about in the case where the US Fed decides to sterilize the intervention? How would it do it? And what would be the impact on the Feds balance sheet, the exchange rate, and the interest rate? Illustrate with the Feds T-account and the forex market diagram.

Describe the balance sheet or net worth channel of an expansionary monetary policy in the US and its impact on aggregate demand and inflation. Explain how the sources of financing for firm investment and consumer spending matter for the power of the balance sheet and net worth channel.