Mar 17 2008
Here we are, the night before our test on Monetary Policy, and good ol’ Mr. Bernanke throws me a perfect blogworthy bit of news!
The Federal Reserve announced a series of steps Mar. 16 to help provide relief to a spreading credit crisis that threatens to plunge the economy into recession: The central bank approved a cut to its lending rate to financial institutions, from 3.5% to 3.25%, and created another lending facility for big investment banks to secure short-term loans.
Global financial markets appeared to react with alarm on Sunday evening. In overseas trading, the euro made new highs vs. the dollar, U.S. Treasury futures fell, and gold futures posted new record highs at $1,009.50 per ounce.
- Describe briefly what the article means by “a spreading credit-crisis”. How does less lending threaten to “plunge the economy into recession”?
- Which tool of monetary policy does the term in bold refer to? Why would financial institutions ever need to borrow from the Fed?
- Why did the euro reach “new highs vs. the dollar” on news of the US lowering interest rates? Why did gold shoot to its highest price in history on the news?
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author
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