Economic :read the description and do the following

234 PT,RTV MONEY AND PRICES IN IHE LONG RUN

CII,APTER I I THE MONETARY SYSTEIVI 235

private markets at rates below the interest rate:nii:t,,.ryffitqhcciib le,b,yso{q:.,,.,::r,.:H,oqq.yE,ltr,ll.patteirlflppeall,!,! ''..'};ffiXil];1liiiXi1lffi ing, they can earn a spread without risk. have resulted from the fact that some large un6 on tn, f*rrrtl.-

Thus the interest rate that the Fed pays lenders in the federalJunds market, notably Third, using the authority congress gave

fftH:,illJiffiff:::ilIlxiilJflTGre@T@,,,lliiif;.J,i]:,.x'Jffii,f.,;l,:Hl:l

should tend t0 put a floor under strort-ieim government-sponsored enterprisrr'rrJ u, ,r,r'orr,rirrru rr"nrrns, balances at the maitto!@sijlloluOlne,qni,roticy tareq!.thq Fqnllq Naeland.l irnrtrori{irn,, ,.,,..rrgffiid,ffii;i; orilil;-ilk ,- federal-funds rate. Raising the rate paid on to receive interest on balances held at the analogous to the certificates of deposlt that growth in money 0r credit, because banks in that market at rates below what the Fed held in term deposits at the Fed would not

suggests that paying interest 0n reserves simple arbitrage noted above will tend to ings of long-term securities into the open eftcllnetl,ma!ihe0,s$..o ii1m:.,n 1i.i:'liiimit:!le',gapletweenlhgfqdqlalfunosiate,.ttlnartrsL,,,,:1:.r,,:...,:,:..1

Ba@oWibanliq:ti,,pltu.i1cegq.,le!9rvJi cap persistq,thepmUtem:ian.tiaafi$,,. ise,sfo.rt 't€ futirrrirutrrr-d;r;

asrX,h.a-t:,,emffinifilrt ]!i lti:q' ri'o, $fus.*1!h,.iiipi.1e re..d,x rege d,n{,:.,1.1q1d,,ci il:.therebj|:iigh.tdfu#;i#: the overnight interbank rate remained at or second means of tightening monetary policy. Overall, the Federal Reserve has many above its deposit rate. ln addition, the Bank Here are four options for doing this. ,ttrrii6 irrfr ,r-urf,,rr-;;;;,;;il;;

used their ability to pay interest 0n reserves bank reserves and reduce the excess liquid- do so. As my colleagues anO t ttave stateA,

rates' scale reverse repurchase ,grrrirn-t, *]tn ,, vvrr"riiitrl1r, ,onrturv policy for an ex- Despite this logic and experience, the financial market participants, inctuding t*rorl prrioJ. w, ,,liirrliulririi;;;;;

federal-fundsratehasdippedsomewhatbelow banks, government-sponsored enterprises and paceofanyfutureilh,r;;;; ,r;;il;;

and November 2008, when the Fed first began agreements involve the sale by the Fed of objectives of maximum employment and