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Dr. Econ
Dr. Econ answers many questions with a focus on monetary policy and Federal Reserve related issues. The Doctor does not do homework, give financial advice or provide research support.
Got a question for Dr. Econ? Post your questions here.
First Quarter 2013
Dr. Econ explores the history of interest on reserves held at the Fed, its significance during the financial crisis, and its role in the Fed’s exit strategy.
Who is the best known economist from the 1850s? (December 2005)
Dr. Econ offers helpful advice for determining the best known economist from the 1850s.
Can the Fed conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? (November 2005)
Dr. Econ examines whether the Fed can conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange.
What are the differences between debt and equity markets? (October 2005)
Dr. Econ explains differences between debt and equity markets.
Credit cards are commonly used to buy goods and services—are credit card transactions or credit card debt included in demand deposits or the money supply? If not, why doesn't the definition of the money supply include them? (September 2005)
Dr. Econ explains why the use of credit, such as a credit card, is not considered part of the money supply.
Are 401k and IRA contributions included in the national savings rate, and if so, how is this calculated? (August 2005)
Dr. Econ explains how the national savings rate is figured, and discusses recent trends in national savings.
Who are the largest holders of U.S. public debt? (July 2005)
Dr. Econ explains who holds U.S. public debt.
What is the prime rate, and who borrows at that interest rate? (June 2005)
Dr. Econ defines the prime rate and discusses commercial and consumer loans. Also discussed is the relationship between the prime rate and the fed funds rate.
Why is there such a time lapse getting the latest report on Gross Domestic Product (GDP)? In May 2005, we are just getting the preliminary GDP report for the quarter that ended in March 2005. (May 2005)
Dr. Econ defines the Gross Domestic Product (GDP) and explains the complicated steps necessary for its calculation. He also examines the trade-off between timeliness and accuracy, and the need for advance, preliminary and final estimates.
What is neutral monetary policy? (April 2005)
Dr. Econ discusses monetary policy, and how it is used to stimulate and restrain the economy. Also discussed is the effect of the fed funds rate on other interest rates.
Are credit unions regulated or supervised by the Federal Reserve System? (March 2005)
Dr. Econ describes the differences between a bank and a credit union, and how each is regulated.
How does the Fed determine interest rates to control the money supply? (February 2005)
Dr. Econ examines a common misconception about how the Fed conducts monetary policy using the money supply. He also looks at the relationship between the money and the economy.
Please explain how financial markets may affect economic performance. (January 2005)
Dr. Econ defines financial markets and explains why financial institutions and markets are important to economic growth and stability.
Why do we need a central bank like the Fed when the laws of supply and demand will keep everything working perfectly? (December 2004)
Dr. Econ discusses the important roles played by Federal Reserve System in the U.S. economy, some of which are not always visible to the public, though they directly and indirectly affect participants in many financial transactions.
How does the Federal Reserve define "loans and leases," and how do they relate to "commercial and industrial loans"? (November 2004)
Dr. Econ explains how loans and leases are defined and where to find information on them. He also discusses the importance of commercial and industrial loans to banking institutions and the economy.
What is "core inflation," and why do economists use it instead of overall or general inflation to track changes in the overall price level? (October 2004)
Dr. Econ discusses the Consumer Price Index (CPI) and what it comprises. Also examined is price fluctuation, and the volatility of food and energy prices.
I find definitions of the federal funds rate stating that it can be both above and below the discount rate. Which is correct? (September 2004)
Dr. Econ discusses the federal funds rate as a tool of monetary policy, and how the fed funds market works.
How would a change in inflationary expectations affect nominal interest rates and the yield curve? (August 2004)
Dr. Econ explains how inflationary expectations typically are
quickly-although not necessarily fully-incorporated into the nominal
interest rates observed in financial markets, and are important factors
in determining market or nominal interest rates and shifts in yield
curves.
What is a yield curve, and how do you read them? How has the yield curve moved over the past 25 years? (July 2004)
Dr. Econ explains how yield curves track the relationship between interest rates and the maturity of U.S. Treasury securities at a given time. He will compare several yield curves and see what information they might provide economists.
Why does the Federal Reserve consider nonfarm payroll employment to be an important economic indicator? (June 2004)
Dr. Econ discusses various sets of data used in examining employment, how they differ and how they influence monetary policy.
What type of fiscal policy is the United States following in 2004? How does fiscal policy impact the economy? (May 2004)
Dr. Econ compares and contrasts monetary and fiscal policy, then discusses surpluses versus deficits, and their effects on the economy.
How much currency is circulating in the economy, and how much of it is counterfeit? Is currency included in the money supply statistics? (April 2004)
Dr. Econ describes how currency is included in measures of the money supply. He also discusses the impact of currency held overseas.
Companies are beginning to compete for workers by increasing wages. Is the Federal Reserve concerned that these wage increases will result in higher prices throughout the economy? If so, what could the Federal Reserve do to counteract this trend? (March 2004)
Dr. Econ examines the relationship of inflation, wages, productivity, and the economy, and how monetary policy can influence each.
What is the importance of developing job skills? (February 2004)
Dr. Econ examines the value of education and how workplace competition affects and reshapes the economy.
In times of financial stress, what typically happens to the difference between interest rates on corporate bonds and U.S. Treasury bonds? (January 2004)
Dr. Econ explains how bonds work, then proceeds to a comparison of corporate and U.S. Treasury bonds, showing how they react to risk.
How is the housing affordability index calculated? (December 2003)
Dr. Econ discusses the main drivers of housing affordability: family income and mortgage rates.
What is the Beige Book, and what role does it play in setting interest rates for monetary policy? (November 2003)
Dr. Econ explains the Beige Book and discusses its role in setting interest rates for monetary policy.
What is the advantage of putting your money in a Fed member bank versus a bank that is a nonmember? How do you know which banks are Fed members? (October 2003)
Dr. Econ explains the differences between a Federal Reserve System member bank and a nonmember bank, with an eye towards how consumers might be affected.
Is the Federal Reserve a privately owned corporation? (September 2003)
Dr. Econ discusses the unique structure, role, and responsibilities of the Federal Reserve System within the U.S. government.
What it the difference between the real interest rate and the nominal interest rate? (August 2003)
Dr. Econ discusses interest rates, with explanations of the real and nominal interest rates, as well as a discussion of the effects of inflation.
How has the level of consumer debt changed in recent years? Are people more in debt now than ever before? How is consumer debt tracked, and what amount of debt is considered excessive? (July 2003)
Dr. Econ discusses why consumer debt is a concern, and examines recent trends in household debt and income.
Which organization determines whether the U.S. economy is in a recession and what indicators are used to make that determination? (June 2003)
Dr. Econ talks about business cycles, and examines the role of the National Bureau of Economic Research (NBER) in determining recessions and expansions. Also discussed are some of the criteria used by the NBER.
What is deflation, what are the risks of deflation, and how can the Fed combat deflation? (May 2003)
Dr. Econ defines deflation, discusses the risk of deflation given the 2001 recession and slower growth through the first half of 2003, and explains what the Fed can do to prevent deflation.
Why do not the goals of the Federal Reserve include helping a region of the country that is in a recession? (April 2003)
Dr. Econ examines the monetary policy instruments available to the FOMC, and the role of the Federal Reserve Banks in shaping monetary policy.
Where can I find forecast information on interest rates over for the next two years? (March 2003)
Dr. Econ shows you how you can use publicly available data to learn about the market's opinion of future FOMC federal funds rate decisions.
What effects do recessions have on college students? (February 2003)
Dr. Econ examines potential dilemmas faced by college students including shrinking education budgets, reduced household income, and increased competition for jobs.
How did the Fed change its approach to monetary policy in the late 1970s and early 1980s? (January 2003)
Learn about the history of monetary policy and find out why the FOMC changed its approach to monetary policy in the early 1980s.
What are the similarities and differences between the 2001 recession and the Great Depression? (December 2002)
While there are some similarities between the 2001 recession and the Great Depression, there are also several key differences between the two business cycles.
What is the difference between private and social costs, and how do they relate to pollution and production? (November 2002)
First, definitions of private costs, external costs, and social costs. Next, an examination of the impact external costs can have on prices, production, resource allocation, and competition.
What are some of the factors that contribute to a rise in inflation? (October 2002)
Dr. Econ discusses how inflation is defined and measured, the types and causes of inflation, and who measures inflation.
Does the Federal Reserve System hold stocks or other commonly traded equities like the Bank of Japan recently started doing? (September 2002)
The Federal Reserve System does not hold corporate stocks, but it does hold government securities. In 2001 government securities accounted for a significant share of Federal Reserve System's $654 billion in assets. The Federal Reserve's securities portfolio is composed of securities issued by the United States government or government agencies.
How low has the Federal Reserve's Discount Rate fallen in the past? Has it ever fallen to zero? (August 2002)
The discount rate is the interest rate the Federal Reserve Banks set on
secured overnight loans to depository institutions. The Federal Reserve
Bank of New York's discount rate was 1.00 percent from August 1937 to
January 1948. A new Fed proposal may change how the discount rate is
set.
I heard an investment analyst say that the Fed had increased the money supply, and that would lead to economic growth. What indicators would tell me about the money supply and Fed monetary policy? (July 2002)
The Federal Reserve Board publishes information on a variety of interest rates and monetary aggregates that you might find useful. Let me recommend some sources for you to keep up to date on Fed policy actions, interest rate and money supply statistics, and other online publications.
What is the relationship between the discount rate and mortgage rates? (June 2002)
The Discount Rate is the interest rate the Federal Reserve Banks charge depository institutions on overnight loans. The primary conventional mortgage rate is a market-determined interest rate for long-term residential mortgage loans. How do these two interest rates behave over time?
What are business cycles and how do they affect the economy? (May 2002)
Business cycles are the "ups and downs" in economic activity, defined in terms of periods of expansion or recession. During expansions, the economy, measured by indicators like jobs, production, and sales, is growing--in real terms, after excluding the effects of inflation. Recessions are periods when the economy is shrinking or contracting.
How does the U.S. banking system compare with foreign banking systems? (April 2002)
This answer illustrates some ways in which the U.S. banking system is similar (providing banking and financial services) to the banking systems in other industrialized countries and other ways (banking regulation, structure of the industry, powers of banks to engage in securities and insurance activities) in which it differs from them.
What is the difference between fiscal and monetary policy? (March 2002)
Both monetary and fiscal policy may be used to influence the performance of the economy in the short run.
What steps can be taken to increase savings in the United States economy? (February 2002)
Why Americans are in the aggregate saving far less (or consuming much
more) as a percentage of disposable personal income than they did over
most of the past 40 years.
Why did the Federal Reserve System lower the federal funds and discount rates below 2 percent in 2001? (January 2002)
Discussion of the Fed's monetary policy to counteract the slowing economy by lowering interest rates in the federal funds market and at the discount window. The 2001 decisions resulted in the lowest federal funds rate since 1961 and the lowest discount rate since 1948.
Does a central bank have more information about the economy than the government, and, If so, what type of information? (December 2001)
Discusses the role of the Federal Reserve as a generator of economic
information for use by government agencies, businesses, academics,
and the public through statistics and surveys, as well as various
other Fed publications.
Do all banks hold reserves, and, if so, where do they hold them? (November 2001)
Discusses how reserve requirements held as vault cash or deposits
at regional Federal Reserve banks aid in the conduct of open market
operations.
What impact will the September 11th attacks have on the outlook for the U.S. economy? (October 2001)
Reference to an article that provides a thorough analysis of the Federal
Reserve's response to the attacks, the economic outlook over the short-run,
and the longer-term prospects for the economy.
What is bank capital and what are the levels or tiers of capital? (September 2001)
Discusses the capital requirements set by the 1988 Capital Accord that
are met through two capital tiers in order to enhance the safety and
soundness of capital in the international banking system.
What effect does a change in the reserve requirement ratio have on the money supply? (August 2001)
Explanation of how reserve requirement ratio changes affect the money stock.
What is the economic function of a bank? (July 2001)
Discusses the role of banks as key components of the financial system
and how bank assets and liabilities help channel funds from savers to
borrowers in a more efficient manner.
What are the money and foreign exchange markets? What forces influence supply and demand in these markets? (June 2001)
General explanation of money markets and foreign exchange
markets, as well as some of the principal factors that
influence money market rates and foreign exchange rates.
Why haven't the boundaries of the 12 Federal Reserve Districts been adjusted to reflect changes in population or economic growth? (May 2001)
Brief reference to Fed history, as well as a discussion of Fed district boundaries and Fed district comparison.
What are the rationales for using a fixed money supply rule, rules employing feedback mechanisms, or allowing policy makers discretion when setting monetary policy? (April 2001)
Discussion focusing on the rules of monetary policy, including
the Taylor Rule, feedback mechanisms, and the discretion of
policymakers in the art of monetary policy.
What will happen to the Fed if the national debt is paid off? (March 2001)
Discussion regarding changes that might occur in implementing
monetary policy without treasury debt. Also examines how paying
off the national debt would affect the Fed securities portfolio.
When were the most prolific bull and bear market periods in the United States? (February 2001)
Explanation of bull markets and bear markets in relation to
stock market indexes, such as the Dow Jones Industrial Average.
Please explain what the social security surplus is and why is it important? (January 2001)
Discussion of the relationships between Social security and surplus, and social security and trust fund.
What makes Treasury bill rates rise and fall? What effect does the economy have on T-Bill rates? (December 2000)
Explanation of T-bills, treasury auctions, and t-bill interest
rate movements.
Why did the national debt in the hands of the public increase from approximately $700 billion to over $2,400 billion during the 1980s? (November 2000)
Explanation for the increase in national debt in the 1980s,
in which increases in government spending and decreases in
tax receipts were significant contributing factors.
How do you calculate a nation's wealth and why might different methods be used to estimate wealth? (October 2000)
Discusses some of the key components in calculating national wealth (i.e. U.S. assets) and conducting cross-country comparisons. Mentions the importance including measures of wealth to provide a standard measure for comparison, such as distribution of wealth based on family net worth.
How do you define 'Commercial Loans' and what is the economic importance of these types of loans? (September 2000)
Discusses how commercial and industrial loans enable business borrowing, and how bank loans to business supply funds for a wide range of business purposes, including inventory financing and investments in equipment.
What would be the likely effect of completely paying off the public debt? (August 2000)
Describes some of the changes that would result from paying
off national debt for key figures, such as the Federal Reserve,
the financial markets and institutions, and for other holders
of government debt. Also presents some key financial statistics,
such as changes that would result in Treasury securities and gross
public debt.
Why do we need economists and the study of economics? (July 2000)
Why study economics? This discussion explains why we need
economists and the study of financial and regional economic
issues to make sense of our complex environment.
Are we on the verge of a turning point in the credit cycle? (June 2000)
Considers how changes in credit standards and asset quality affect credit cycles.
How does the Federal Reserve System keep our banking and financial industry safe? (May 2000)
Discusses some of the primary responsibilities of bank regulators
in ensuring the safety and soundness of financial institutions, as well as the changes to bank regulation and supervision brought about by the Gramm-Leach-Bliley Act of 1999.
Are recent Fed actions and monetary targets appropriate for our technology- and information-based economy? (April 2000)
Considers the relationship between monetary policy & technology
in the information-based economy and distinguishes between the
success of monetary targets in the old and new economy.
Discuss the definitions and means of calculating national income, personal income, and disposable personal income (March 2000)
A discussion of the definitions and means of calculating national
income, personal income, and disposable personal income.
Should the government or the central bank be left in control of interest rates? (February 2000)
Referencing the history of monetary policy, (i.e. the Treasury Accord),
this discussion focuses on why independent central banks, such as the
Federal Reserve are more successful at reaching price stability through
inflation and interest rate control than central banks acting under the
direction of the treasury or the government.
Compare the standard of living in countries with the same GDP but different population growth rates (January 2000)
Discussion surrounding GDP growth rate comparisons and the
implications for divergent standards of living. Emphasizes
the importance of normalizing the statistics used in an
international comparison of growth rates by incorporating
the effects of population growth.
Why do investment banks syndicate a new securities issue (and related questions)? (December 1999)
The first part of this three-part Dr. Econ discusses why investment
banks establish a syndicate in new securities offerings. The second
and third sections address the implications of the Employee Retirement
Income Security Act of 1974 (ERISA) and the role of insurance companies
as major bondholders in the financial markets.
What is the single most important economic indicator for policymakers? (November 1999)
While no single indicator is used, several leading indicators,
such as Gross Domestic Product (GDP), inflation, and total
nonfarm payroll employment help the Federal Reserve monitor
how successful it is in attaining its goals.
Why does a trade deficit weaken the currency? (October 1999)
Discusses the implications of an imbalance between imports
& exports including changes to the foreign exchange rate,
currency devaluation, and dollar depreciation
What is deflation and how is it different from disinflation? (September 1999)
Discusses the distinction between deflation and disinflation,
as well as some of the principle causes of deflation.
Do economists know more today about the economy than they did in the 19th and early 20th centuries? (August 1999)
Discussion of factors that have affected economic knowledge of,
and the strength of business cycles, including changing job
composition, the creation of the Federal Reserve, as well as
the shift in production from a manufacturing economy to a service
economy.
Is diversifying across world markets a good investment strategy? (July 1999)
Discussion surrounds the role of business cycles, and the risk & return of international stock markets in building a diversified portfolio for investing.
What is the cause of the spread between the federal funds rate and the prime lending rate? (March 1999)
Discusses how the cost of funds, such as the costs of performing
a credit evaluation on the business requesting a loan determine
the spread between the federal funds rate and the prime rate.
What is the relationship between inflation and GDP growth? (February 1999)
Discusses the adjustment costs associated with rising inflation,
as well as the fallacy in assuming a positive correlation between
inflation & output.
Why does the discount rate no longer vary by region? (January 1999)
In the 1910s, the discount rate variance among the regional
banks was large because capital did not flow as easily from
one region to another. Today, however, the single national
discount rate among Fed Districts reflects a unity in national
credit markets.
Are Americans spending more than they are saving? (December 1998)
Discussion concerning what constitutes saving or investment with regard to equities, particularly during a period of "asset inflation" in the stock market.
How would Russian use of the dollar as a medium of exchange along with the ruble affect U.S. monetary policy? (November 1998)
The proposal to go to a dollar-based economy in order to
alleviate the Russian currency crisis would not greatly
impact U.S. monetary policy. However, because the use of
the dollar as a medium of exchange with the ruble would
increase the quantity of U.S. currency in circulation, the
establishment of a currency board would help lessen any effects on the U.S. monetary base and help facilitate the
conduct of monetary policy.
Are commodity prices a good leading indicator of general price inflation? (July 1998)
The usefulness of commodity prices as a leading indicator of
general price inflation is questionable because they are
dependent upon the type of demand shift that occurs, for example, economy-wide demand shocks (i.e. oil shock of the 1970s)or shifts in the relative demand for commodities and goods.
Does inflation hurt long-run economic growth? (June 1998)
Discusses the relationship between inflation and distortions
in economic decisions, which can have adverse effects on
long-term economic growth by creating additional costs such
as an inflation risk premium, and in the case of high rates
of inflation, an inflation tax.
Why is M2 above its 1998 range, and what does it mean for monetary policy? (May 1998)
Because overall economic activity has been robust, demand
for M2 has risen. However, due to deregulation and innovation,
M2 and the monetary aggregates in general play only a minor
role in the formulation of monetary policy.
What is behind the currency crisis in East Asia? (April 1998)
Details some of the factors that led to the East Asian currency
crisis and how some countries tried to fight off attacks on
their currencies in order to avoid currency depreciation.
What is Taylor's rule? (March 1998)
One of the few rules referenced in designing and implementing
monetary policy, the Taylor Rule provides recommendations for
setting real-short term interest rates according to factors such
as actual inflation vs. targeted inflation and the level of full
employment. In all, it guides policy to help a central bank
achieve both its short-run goals for stabilizing the economy and
its long-run goals for keeping inflation low.
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