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The Federal Reserve believes that a certain rate of interest on Federal Funds is associated with price stability (which is 2% rate of inflation). However,
- The Federal Reserve believes that a certain rate of interest on Federal Funds is associated with price stability (which is 2% rate of inflation). However, the Federal Funds rate tends to fluctuate with the changes in the demand for federal funds by the banking system. Hence, to maintain the Federal Funds rate at the desired rate or to raise it or lower it to a new rate the Federal Reserve System undertake open market operations, or few other measures.
- Draw diagrams to show
- Equilibrium Federal Funds rate at the desired rate
- Equilibrium Federal Funds rate higher than the desired rate
- Equilibrium Federal Funds rate lower than the desired rate
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Financial Reporting and Analysis
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
7th edition
1259722651, 978-1259722653
