Within Two Days Following the September 11, 2001 Terrorists Attacks

question 61

Essay

Within two days following the September 11, 2001 terrorists attacks, the float in the banking system increased by almost a hundred fold.Float is an asset of the Fed since it represents loans being made to banks by the Fed, yet this dramatic increase in float caused the Fed to actually have to increase reserves to keep the payments system from coming to a halt.Explain why this was the case.

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Definitions:

World Price

The international market price of a good or service, determined through global supply and demand interactions.

Diminishing Returns

The principle that if one factor of production is increased while others remain constant, the overall returns will eventually decrease after reaching an optimal level.

Opportunity Cost

The act of foregoing potential opportunities for gain from several alternatives when deciding on one.

T-shirts

Casual garments made from fabric, typically short-sleeved and collarless, worn as informal wear or under clothing.