Monetary policy Assignment Example | Topics and Well Written Essays - 500 words

Monetary policy - Assignment Example FED â€Å"targets† the fed funds rate means, that the Fed uses reserves changes to affect the federal funds rate. This is because Fed considers that this rate is closely related to economic activities than the T-bill rate, prime rates, discount rates, or mortgage rate. The yields curve is a plain illustration of the relationship between the interest rate paid by a bond and the time of maturity of the bond. A traditional yield curve is shaped by future path expectations of short-term interest rates as well as uncertainty concerning the path. The expression MV=PQ is significant to the economists in helping them to explain what might occur when policies of the Fed on progressively printing money is thrown out, and replaced by a economical scheme of dollar-in, dollar-out turn out. The Fed balance sheet has changed in recent years in that, there were increases in the holdings of the treasury securities from 1961 to 2006, but decreased in 2007. From 2008, the holdings started increasing