Home » #7 (20 points) a) In Ben S, Bernanke’s book: The Courage to Act he writes of when overnight lending markets first began becoming tight.

#7 (20 points) a) In Ben S, Bernanke’s book: The Courage to Act he writes of when overnight lending markets first began becoming tight.

#7 (20 points) a) In Ben S, Bernanke’s book: “The Courage to Act” he writes of when overnight lending markets first began becoming tight. It was on August 9, 2007 when BNP Paribus ( a bank in France) suspended withdrawals from its sub-prime funds. News from European markets arrives in early morning and short term financial markets in the US were feeling the brunt. That morning, Ben Bernanke emailed Brian Madigan (a Penn Stater) to instruct the New York Fed to purchase large quantities of Treasury Securities on the open market. The New York Fed ended up purchasing $24 Billion in Treasury securities that morning.  The target for the Federal Funds rate at this time was 5 1/4 %.

a) (10 points) Draw a Reserve Market Diagram depicting the state of affairs on August 8, the day before the shock, assuming the Fed was hitting their target exactly.  Now depict the shock and the reaction of the New York Fed assuming that they purchased just enough securities to get the federal funds rate back to target.  What would determine how many securities that the New York  Fed would have to purchase to bring the federal funds rate back to target?

b) (10 points) Let’s pretend that the exact same shock occurs but that we are in a world where there is about $2.6 trillion in excess reserves (this is the current number as of Oct. 2015) and that the Fed is paying 5 1/4% for holding these excess reserves. Redraw the reserve market diagram as above locating point A.  Now, given this new regime, show point B and explain exactly what is going on here. Does Brian Madigan have to instruct the New York Fed to purchase large quantities of Treasury Securities on the open market? Why or why not? Explain.

Show more







Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10