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the Fed pursued a strong decrease in the federal funds rate in response to the 2007-2009 financial crisis/recession, from 5.25% to 0.
1. the Fed pursued a strong decrease in the federal funds rate in response to the 2007-2009 financial crisis/recession, from 5.25% to 0.25%.
a. List the steps in the monetary policy transmission mechanism that were expected to follow from the lower federal funds rate.
b. Suppose aggregate demand was not very sensitive to changes in interest rates. Would the policy from part a have been more or less effective?
c. Suppose the marginal propensity to consume was low for the economy as a whole. Would the policy from part a have been more or less effective?
