d. Expanded use of online payments reduces the amount of money people want to hold. The central bank holds the money supply constant. LM IS E Income, output, Y Interest rate, r
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- 13. When the government uses its overdraft facilities at the central bank, it ___________ the quantity of moneyin the economy. This is called ___________________ financing. A Increases; deflationaryB Decreases; inflationaryC Decreases; deflationaryD Increases; inflationaryThe public holds no currency. The ratio of reserves to deposits is 0.1. The demand for moneyin an economy is given by Md = $Y(0.8 – 4i). Initially, the monetary base is $100 billion, andnominal income is $5000 billion (or $5 trillion).Please answer the following questions:A) What is the demand for central bank money?B) Find the equilibrium interest rate by setting the demand for central bank money equalto the supply of central bank money.C) What is the value for money multiplier?D) Given that overall money supply equals (1/reserve ratio)*monetary base, is it equal tothe overall demand for money at the interest rate you found in part (B)?4. The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by imple-menting an expansionary monetary policy, causing M2 money supply to rise from $15.33 trillion in December 2019 to $18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should theinflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the monetary ex-pansion?
- . Assume that the banking system has total reservesof $100 billion. Assume also that required reservesare 10 percent of checking deposits and that bankshold no excess reserves and households hold nocurrency.a. What is the money multiplier? What is the moneysupply?b. If the Fed now raises required reserves to20 percent of deposits, what are the change inreserves and the change in the money supplyif people hold all money as demand deposits and banks maintain a reserve raitio of 12.5 percent what's the quantity of moneyConsider an economy in which the demand for money is of the formMt =(1/v) PtYfor t = 0, 1, 2, · · · , where output is 150, the money velocity is 1.5. The money supplyis 100 for t = 0, 1. In period 2, the central bank surprises people and announcethat money supply will grow at 2 percent forever, that is, M0 = 100, M1 = 100,M2 = (1.02)M1, M3 = (1.02)M2, and so on a. What is the inflation rate in period 1, π1? What is real money balance in period 1, M1 / P1? What is the expected inflation in period 2, given the informationavailable in period 1, E1π2? b. What is the inflation rate in period 2, π2? What is real money balance inperiod 2, M2/P2? What is expected inflation in period 3, given the informationavailable in period 2, E2π3? c. 4. Compare E1π2 and π2.
- Pls select correct option and explain it. Under the floor system of monetary policy, which interest rate serves as a lower bound on the federal funds rate ? a) The overnight, reverse repo rate b) The overnight repo rate c) IOR d) The discount rateThe next Monetary Policy will take place after 50 days and discount rates are expected to increase by 50bps. In this case, the Money Market dealer should take exposure in which of the following and why? 1) 3-Months T-Bills 2) 3-Months TDR 3) 60-days TDRConsider an economy in which the demand for money is of the formMt =1/(bar over v)PtYfor t = 0, 1, 2, · · · , where output is 150, the money velocity is 1.5. The money supplyis 100 for t = 0, 1. In period 2, the central bank surprises people and announcethat money supply will grow at 2 percent forever, that is, M0 = 100, M1 = 100,M2 = (1.02)M1, M3 = (1.02)M2, and so on. 1. What is the inflation rate in period 1, π1? What is real money balance in period 1, M1/P1 ? What is the expected inflation in period 2, given the informationavailable in period 1, E1π2? 2. What is the inflation rate in period 2, π2? What is real money balance inperiod 2, M2/P2 ? What is expected inflation in period 3, given the informationavailable in period 2, E2π3? 3. What is the inflation rate in period 3, π3? What is real money balance inperiod 2, M3/P3?
- (M/P)d = 1,000 − 100r,M = 1000P = 2.a) Graph the supply and demand for real money balances.b) What is the equilibrium interest rate?c) Assume that the price level is fixed. What happens to the equilibrium interest rate if the supply ofmoney is raised from 1,000 to 1,200?d) If the Central Bank wishes to raise the interest rate to 7 percent, what money supply should it set?If money multiplier is 20 Calculate the value of LRRJapan's central bank, the Bank of Japan, has an inflation target of -0.25% per year (or rather "Deflation Target"). According to the Quantity Theory of Money, by how much must the Bank of Japan grow the money stock in order to hit its inflation target? A) The Bank of Japan must increase the money stock by 0.25% per year. B) The Bank of Japan must decrease the money stock by 0.25% per year. C) The Bank of Japan must increase the money stock by 0.25% per month. D) The Bank of Japan must decrease the money stock by 0.25% per month.