A central bank has set a target cash rate of 1 %, while paying banks 0.75% on their exchange settelement account balances and charging an interest rate of 1.25% to banks needing to borrow reserves overninght from the central bank. Suppose that central bank purchases large quantities of government bonds from private banks and other investors, as part of a policy of quantiative easing , without changing any of the above interest rates. what will happen to the cash rate? 1, it will fall towards 0.75% 2, it will remain at 1.0% 3, it will rise to 1.25% 4, it will rise to 1.25% 5, it will fluctuate between 1.25% and 1.75% 6, it will fail to 0%

A central bank has set a target cash rate of 1 %, while paying banks 0.75% on their exchange settelement account balances and charging an interest rate of 1.25% to banks needing to borrow reserves overninght from the central bank. Suppose that central bank purchases large quantities of government bonds from private banks and other investors, as part of a policy of quantiative easing , without changing any of the above interest rates. what will happen to the cash rate? 1, it will fall towards 0.75% 2, it will remain at 1.0% 3, it will rise to 1.25% 4, it will rise to 1.25% 5, it will fluctuate between 1.25% and 1.75% 6, it will fail to 0%

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 8P

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