Assume that the banking system is loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.2, by how much could the money supply expand if the Fed purchased $2 billion worth of bonds?
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Assume that the banking system is loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the
And what are the basic arguments stated by the Real-Business-Cycle (RBC) Theory, regarding economic fluctuations?
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- Which bond should have the highest interest rate? A. Low quality bonds B. Medium quality bonds C. High quality bonds Which of the following statements is NOT true? A. Stock owners benefit from stock price increases B. Common stocks are not securities C. Stock prices tend to be very volatile D. Higher stock prices allow companies access to more capital What is the expected impact of a decline in the money supply to the US economy? A. Lower aggregate prices (deflation) B. Higher aggregate prices (inflation) C. There is no general relationship between the money supply and inflaton Which of the following is NOT a component of federal fiscal policy? A. Federal tax revenues B. Federal government expenditures C. Federal budget deficit D. All of the above are components of federal fiscal policy A strong US dollar tends to A. Reduce exports to foreign…Begin with the money market in equilibrium. What would happen to the money supply function if the Federal Reserve conducted an open market purchase, reduced the discount rate, and increased quantitive easing? What would happen to the money demand function if the Federal Reserve conducted an open market purchase, reduced the discount rate, and increased quantitive easing? What would happen to nominal interest rates in the economy if the Federal Reserve conducted an open market purchase, reduced the discount rate, and increased quantitive easing? What would happen to the quantity of money in the economy if the Federal Reserve conducted an open market purchase, reduced the discount rate, and increased quantitive easing?Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.
- Consider the following short-run, closed economy model of the economy. Goods Market C = 50 + 0.5(Y – T) I = 150 – 10r ; NX = -200 G = 150 ; T = 100 Money Market M = 20,000 P = 100 L(Y, r) = Y – 50r Find the equilibrium values of r and y. Assume the natural rate of output is Y̅ = 210, individuals do not hold currency (cr = 0), and the reserve requirement is 10% (rr = 0.1). If the Fed desires to return the economy to its natural level, what should they do with reserves (R) and the money supply (M)? Show the effect on your graph in part A. What is the new equilibrium real interest rate? Ignore Part B. Policymakers plan to balance the budget by decreasing G. What is the size of the Keynesian-Cross government spending multiplier and the horizontal shift of the IS curve? What are the resulting IS-LM equilibrium values of r and Y after the shift? What is the size of the effective (actual) government spending multiplier? Why is it smaller? If you did parts B and C correctly, then r* < 0.…If the money supply increases by 7%, the price level by 2%, and the real output by 6%, then according to the equation of the quantitative theory of money, the velocity of money increases by:What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change
- Can you please help with the explanation of the below? In contemporary monetary theory, we do not normally think of using a money stock to implement monetary policy. By setting m-p, the log of the real money stock, equal to money demand y-b.i where y and i are ln(GDP) and the interest rate, create a money policy reaction function. Noting that p+y is the log of nominal GDP how could you interpret m in this case so as to make your equation approximate the reality in Australia?What happens to the money supply when the Fed buys government bonds? According to the theory of liquidity preference, what is the impact of the Fed action on the equilibrium interest rate?Suppose that the bank of Canada uses money to buy bonds in financial markets during a recession. a) Use the theory of liquidity preference to graphically illustrate the impact of this purchase of bonds in open markets by the bank of Canada on the equilibrium interest rate in the market for real money balances. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values. Explain what happens to the equilibrium interest rate.
- Outline the ways in which FED easing affects the yield curve (include the theories of the yield curve as part of this). Is it possible for an increase in the real money supply (FED easing) to have exactly the opposite effect? Explain the basis for why this is or is not possible.In today's ample reserves regime, does the Fed set a target level or range for the federal funds rate, and how is it achieved? The Fed achieves its federal funds rate target _______. A. level by setting the discount rate and the interest on reserves rate B. range because whatever the supply of reserves, the rate is between the discount rate and the interest on reserves rate C. level by conducting daily open market operations D. range by setting the supply of reserves equal to the quantity of reserves demanded at the range midpoint thanks!Suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes the multiplier to fall from 10 to 5. Under these conditions, How Many Dollars Worth of government bonds would the Fed would need to Buy or Sell in order to increase the money supply by $100?
