The Federal Reserve System is in place in order to make sure sufficient money is always in the banking system which is required in order to support the growing economy. The goals of the fed are economic growth, stable financial markets, stable interest rates and stable exchange rates. The Federal Reserve system has the power to buy/sell government securities like bonds and to require that the member banks do hold a reserve with a requirement that is a portion of their initial deposit. 10. Subprime mortgages can be defined as the loans that are made to people who were not able to keeping up with repaying their loan. People who had credit scores below 640 were referred to as borrowers. This crisis arose from packaging American subprime and American regular mortgages into mortgaged back securities. Which were sold in a market which was separate from the traditional prime loans. The packaged mortgages were asset-backed securities so that the likely rate of return would look excellent. Mortgages mainly had a low interest rate for the first year. …show more content…
Chapter 14 6. A- It will increase liabilities B- Increase of assets and liabilities C- Decrease of assets and liabilities D- Decrease of assets and liabilities 8. Tools the Fed has to pursue monetary policy is that the Fed buys and sells the government securities, then sets the discount rate and sets the legal reserve requirements for member banks. The tool it uses most often is that the Fed often buys and sells government bonds on the open market. 9. A- The Fed will need to lower the reserve requirements which will result in providing banks with more funds they can lend and less to hold in reserve. B- The Fed will need to decrease the required reserve ration. But changes to the reserve requirement could disrupt the banking system. Chapter 15 A- $1,000 B. i.It would decrease the average monthly balance. ii. Your average money balance will