Check my Suppose the target range for the federal funds rate

Check my Suppose the target range for the federal funds rate is 2 to 2 5 percent bu percent Assume that the equilibrium federal funds rate falls (rises) by 1 percent for each $150 billion in repo (reverse that the equilibrium federal funds rate is currently 23 transactions the Fed undertakes. If the Fed wishes to raise the equilibrium federal funds rate to the top end repo or reverse repo Instructions: Enter only positive numbers to show change in the rate reverse repo bonds worth of the target range, will it bonds to non-bank financial firms? How much will i have to repo or reverse repo?

Solution

The target range for the federal funds rate is 2 to 2.5 percent.

So, the top end of target range is 2.5 percent.

Current equilibrium federal funds rate is 2.3 percent.

Fed wants to increase the equilibrium federal funds rate to the top end of the target range.

So, Fed wants to increase the equilibrium federal funds rate by 0.2 percent.

When federal funds rate has to be increased, Fed undertakes reverse repo bond transactions.

It is provided that,

For 1% increase in the equilibrium federal funds rate, Fed has to undertake $150 billion in reverse repo transactions.

So,

For 0.2% increase in the equilibrium federal funds rate, Fed has to undertake ($150 billion * 0.2) $30 billion in reverse repo transactions.

So,

Reverse repo bonds worth $30 billion.