FannieMae is able to make money in any kind of economy. During times of low interest rates they make money on people who bought fixed rate mortgages at a time of high interest rates. They also have a hard making money during this time because their marginal percentage is smaller and they make less of a profit... Showed first 250 characters
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They also have a hard making money during this time because their marginal percentage is smaller and they make less of a profit. During times of high interest rates, they lose money on people who bought fixed rate mortgages at low interest rates. They also make a lot of assets during this time because they borrow from the federal reserve or banks at lower interest rates and lend money at high interest rates... Showed next 250 characters
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Monetary policy can be implemented by changing the proportion of total assets that banks must hold in reserve with the central bank. Banks only maintain a small portion of their assets as cash available for immediate withdrawal...
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To understand the effects of the monetary tightening policy of the government, we will take a look at our product market equilibrium (IS) and money market equilibrium (LM) equations respectively:
Y = C (Y-T) + I (r) + G --- 1
M/P = L1 (Y) + L2 (i) --- 2
Here, Y is the total output or total income in the economy, C is the consumption demand, I is the investment demand and G is the government expenditure...
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how does the federal reserve control the money supply?
The Federal Reserve System "The Fed" controls the money supply in the United States by controlling the amount of loans made by commercial banks. New loans are usually in the form of increased checking account balances, and since checkable deposits are part of the money supply, the money supply increases when new loans are made and decreases when they decrease...
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An expansionary policy multiplies the total supply of money in the economy, and a contractionary policy diminishes the total supply. Expansionary policy is used to tackle unemployment in an economic decline by lowering interest rates, while contractionary policy has the goal of elevating interest rates to fight inflation...
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Impacts Of Inflation
Inflation and interest rates mainly run parallel to one another. Usually when interest rates are too low, the public is inclined to purchase too many assets, vehicles and household goods on credit, resulting in banks and moneylenders increasing the rates and this in turn BOOSTS inflation...
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Relationship between interest rates and price of bond
An increase in money supply as an expansionary monetary policy to cope with the rising deficit will raise national income and wealth. Hence, demand for money, as a store of value or medium of exchange will increase...
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Impact of Monetary Policy on Netflix
Monetary policy refers to those actions taken by the Federal Reserve, affecting interest rates, the exchange rate and the money supply, in order to influence the pace of spending and, by that, inflation...