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An economy is currently experiencing inflation that exceeds the target rate set by the central bank. Answer the following questions:
a) Explain the process in full detail by which the central bank can bring the inflation rate down.
b) Illustrate this process from a) using the
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- According to the lectures, which of the following ideas are representative of (neo)classical (orthodox) theory, which are representative of (post)Keynesian (heterodox) theory, and which are shared by both theories? The loanable funds market Capitalist economies will normally fail to reach full employment due to insufficient aggregate demand Investment and savings are primarily functions of the rate of interest Savings equals investment in equilibrium (ignoring government or foreign sector) Capitalist economies tend to full employment, at least in the long run The paradox of thrift Demand, particularly intended investment, drives supply "In the long run, we're all dead" Interest rates fall when money saved exceeds the demand for those funds for investment, until savings equals investment Output, income, and employment fall when money saved…Using the framework of the supply and demand of loanable funds, analyze the possible effect on the equilibrium interest rate in the U.S. in each of the following independent, hypothetical scenarios. a. The economy heats up, leading to higher wages and decreased unemployment. b. Concerned that the credit rating of US Treasury securities will be downgraded, international investors move some money out of the US. c. Congress approves a budget that decreases spending and increases tax rates, thereby driving the deficit downwhich of the following are true statements about another growth model - the Quantitative Theory of Credit? [Multiple select] Credit creation drives nominal GDP growth and asset price inflation. Banks are only financial intermediaries between borrowers and lenders. Empirically, in the 20th century, the velocity of money is usually constant over time when money is defined as M0, M1. . .M5. A large ratio of Cr/C can lead to bank crashes and recession.
- Graphically Show each scenario of the market for loanable funds and graph the supply and demand for each of the 4 scenarios. Draw the shift occurring (Supply or Demand) and explain what happens to the equilibrium interest rate in for each of the 4 scenarios 1. A breakthrough in medical technology results in many hospitals wanting to buy new equipment. 2. The government budget deficit is reduced by 50%. 3. Foreign investors buy residential property in the United States. 4. People around the world are worried about financial stability in their countries and choose to move their wealth to U.S. financial markets.According to the "Yes - Markets Self-Adjust" camp, money allows savings to flow easily through the loanable funds market to facilitate business borrowing for investment spending. Select one: True FalseDiscuss how the following macroeconomic factors influence performance of loans. low economic activities, high unemployment, high inflation rate, and weak monetary policy
- To support economic growth, the Indonesian government is committed to making the Islamic economy a source of national economic growth, one of which is through Islamic banking. In general, the form of a sharia bank business consists of a Commercial Bank and a Sharia Rural Bank, with a number of main differences. Banks are basically entities that collect funds from the public in the form of financing or in other words carry out the function of financial intermediation. There are a number of differences between Islamic Commercial Banks and BPRS. Explain what you know the differences in the bank!Choose the best answer in the brackets 1) According to the loanable funds theory, a decrease in trust to commercial banks among the population will result in a decrease of (Choose one: Loanable funds supply, inflation, velocity of money, demand of loanable funds)and will result in(Choose one: decrease, no change, increase) in market interest rates. 2) As a result of the changes described in 1), the private investments into factories and equipment will (Choose one:fall, be crowded out by the government, rise) because(Choose one: more investor would be attracted by highest interest rates, more project would be attractive, fewer intestors would be attracted by lower interest rates, less project would be considered attractive) 3) If the government simultaneously decides to increase the issue of the government bonds, according to the loanable funds theory, (Choose one: inflation, velocity of money, loanable funds supply, demand for loanable funds) will rise, leading to (Choose one:…Which of the following was an underlying cause of the economic crisis of 2008? a. The imposition of government regulations on Fannie Mae, Freddie Mac, and other lending institutions that eroded the conventional lending standards in place prior to the mid-1990s b. A failure of government to impose regulations on Fannie Mae, Freddie Mac, and other mortgage lenders c. Federal housing regulations that made it difficult for Fannie Mae, Freddie Mac, and other lending institutions to obtain sufficient loanable funds for the finance housing construction
- To promote long-run growth, the primary economic function of the financial system is to: Group of answer choices keep interest rates low. provide expert advice to savers and investors. match one person’s consumption expenditures with another person’s capital expenditures. match one person’s saving with another person’s investment.F1. 1-While Fiscal policy shifts supply for loanable funds, monetary policy has a larger impact on the demand of loanable funds Select one : A False B. True 2-Laddered Strategy of bond investment involves estimating future cash outflows and then developing a bond portfolio that can generate sufficient coupon or principal payments to cover those outflows Select one: A- False B- True 3-Even though the Central Bank's objectives of high employment and economic growth are clos policies can be specifically aimed at encouraging economic growth by Select one : A- both A and B of the above B-encouraging people to save C- encouraging firms to invest. D- neither A nor B of the above. 4-The premium between low-quality corporate bonds and the government bondsthe Select one A significantly narrows B significantly widens C does not change D is reversedUsing the loanable funds theory, illustrate the effect of the following on the level of interest rates.A. An increase in expected future income. B. An increase in income levels which would result in an increase in the level of savings.