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Assignment 2: The Multiplier Effect

  1. Go to “FRB: Press Release—FOMC statement—December 16, 2009.”
  2.  You should now find a press release from the Board of Governors of the Federal Reserve System, dated December 16, 2009, which discusses the decisions of the Federal Open Market Committee (FOMC) for that date.

This release also states that the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage backed securities and about $175 billion of agency debt. Additionally, the release states that the FOMC has decided to gradually reduce “the pace” of such Fed purchases. Discuss why you believe that the FOMC has made such a decision, and explain the consequences of such a decision on the economy.

In your answer, discuss the Federal Reserve’s use of open market operations to influence the money supply and the respective consequences of such actions. Include a discussion of the money multiplier effect in your response. Justify your conclusions and provide appropriate examples.

Using Microsoft Word, submit your responses in the form of a short paper (1 ½ 2 pages).

By  October2, 2014, submit your responses to the M4: Assignment 2 Dropbox.

Assignment 2 Grading Criteria
Maximum Points
Discussed in detail reasons for the FOMC decision to reduce the number of purchases of government securities.
20
Discussed the consequences of the FOMC’s decision on the economy.
20
Discussed the Federal Reserve’s use of open market operations to influence the money supply.
20
Justified ideas and responses by using appropriate examples and references from texts, Web sites, and other references.
20
Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.
20
Total:
100
 
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