5.1. Between 1/6/2010 and 11/19/2015, did the Fed’s balance sheet expand or shri

Question

5.1. Between 1/6/2010 and 11/19/2015, did the Fed’s balance sheet expand or shrink, and by how much? What does it tell you about the Fed’s monetary policy between these two dates?

5.2. What are the major changes on the assets side? (Go down to the lowest level of items and list at least 2 items.) What does it imply about the Fed’s monetary policy during that period?

5.3. What are the major changes on the liabilities side? (Again, go down to the lowest level of items and list at least 2 items.) If the balance sheet expanded, where did the Fed get the funding to expand its balance sheet? (Or, if the balance sheet shrank, which funding source was reduced the most?)

5.4. The market is paying close attention to the Fed’s next major policy move. What is that move likely to be (e.g., Q.E.? interest rate change? etc.)

Explanation / Answer

Ans 1) Fed balance sheet has expanded as it can clearly be seen that Assets base increased from last date and purchase of securities has increased. As far as monetary policy is concerned Fed wants to increase money supply in the market.

Ans 2) Securities were pucrchased heaveily. US tresury securities, Federal agency debt securities. Purchase of scurities implies that Fed wants to increase the supply of money in the market.

Ans 3) Major change on lilability side are Federal reserves note and Increase in deposits. The money had actually come from Deposits and Federal notes. Fed do it because they want to maintain the interest ratesand keep it closure as compared to the target.

Ans 4) It seems that Fed wants to give a boost to the market, want to create an employment and hence they purchased the assets that also means it is trying to increase the money supply in the market, which will create more demand in the market. The frther move of the fed might would be a cut in the interest rate. So that people can get the money easily from the banks and when people will have money, they will spend thus it will help in reviving the market by creating more demands, ultimately it will help in creating more employment.

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