Answers/ Rough Outline of Video
A. Federal funds rate- Rate at which banks lend/store money into other banks overnight for those banks to meet their reserve requirement
Goal is to lower Excess Reserves(money left over after holding the required reserves), lower ER= more money being made through loans. These overnight loans are no exception
B. Buying securities as part of an expansionary policy to get more money into the money supply. Since these securities become ER, banks will want to lower the fed funds rate to get rid of excess easier. Selling bonds as part of a tight policy will cause the opposite effect
C. $10 mil= ER * 1/.5=2 monetary mult. = $20 mil. change in loans throughout the banking system, as the ER of 10 mil will become a Direct Deposit of another bank. 20 mil would be the maximum sum of all of these deposits.
D. Nominal interest rate would decrease
E. Real interest decrease due to an increase in inflation but a decrease in nominal interest. Keep in mind Real interest= nominal - inflation, so if nominal goes down but inflation goes up, you are at a net decrease.
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