Explain if this statement is true or false and provide equations whenever possible. Specialization in the financial markets has limited positive effects on the supply of money in circulation
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Explain if this statement is true or false and provide equations whenever possible.
Specialization in the financial markets has limited positive effects on the supply of money in circulation
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- 6. One of the banking innovations in the 1960s was the payment of interest on certain types of demand deposits. Assume that interest is paid on money at the nominal rate Rm, which equals (R − x), where x is the nominal return on bonds, which is exogenously determined by market structures and the cost of servicing deposits. (i) Use Baumol’s transactions demand model to derive the demand function for money. (ii) Generalizing the above demand function to md(y, R, x), shows the behavior of the LM curve for shifts in x and P. (iii) What is the effect of an increase in x on aggregate demand, output and price level in the neoclassical model? (iv) Assuming that both R and x always increase by the expected rate of inflation, do (ii) and (iii) again.True or False questions. Provide economic intuition or draw relevant diagrams to justify your answers. 1. Financial innovations in the form of a cryptocurrency reduces the money multiplier and money supply.Answer the given question with a proper explanation and step-by-step solution. Why is equilibrium, in the asset market described by the condition that real money supply equals real money demanded? What is the aggregation assumption that is needed to allow ignoring the markets for other assets?
- . A well-known bank has specialized in adjustable-rate mortgages. They have originated 7 billion USD in adjustable-rate mortgages. This bank generally raises money by borrowing with shorter term loans and issuing fixed-interest rate Certificates of Deposit. The bank has 6 billion in short-term adjustable-rate loans to partly help fund the loan portfolio. The federal reserve has announced an increase in their target interest rate of 50 basis points (0.5%). What is the equation and solution.In a scenario where market interest rates suddenly increase by 2%, for which bank will gap analysis give a misleading answer about what will really happen, compared with a careful simulation analysis? Question 2 options: Bank Y, where most of its deposits are $100,000+ CDs and brokered deposits Bank X, where most of its deposits are small checking and savings accountsMatch the correct motive for holding money to the following definitions. Definition Motive The stock of money people hold to pay everyday predictable expenses The stock of money people hold to pay unpredictable expenses The stock of money people hold to take advantage of future changes in the prices of financial assets other than money Complete the following statement about the relationship between the interest rate and speculative balances. As the interest rate rises, the opportunity cost of holding money , and people their speculative balances. Identify the motive for holding money in the following scenario. Bob recently moved from a commission-based sales job in which his income fluctuated somewhat unpredictably from one month to the next to a salary-based management position where he receives a fixed paycheck each month. His newfound income stability causes him to lower the amount of money he keeps in a savings account to guard against…
- Explain monetary neutrality as a concept of monetary economics.It is easier to account for changes over time by using logarithms of demand for money and income. The following equation can be used? log (MD/P) = α + βi + γlog(y) + εThe following equation is used to model money supply under fractional-reserve banking: M= cr+1 * B cr+rr i) What are the variables within the equation ii) Elaborate on how the exogenous variables within the equation influence money supply and cause it to change.
- In response to the recession of 2008, the US Federal Reserve Bank made several efforts to increase banks excess reserves, decrease interest rates for lending, and increase lending. These "extraordinary measures" have been somewhat controversial (at least among American politicians). Identify some of the effects of these efforts and/or some of their potential future impacts ?Ordinarily the Bank of Canada would like to push interest rates lower during a recession, such as the one cause by the COVID-19 pandemic. Which of the following chartered bank actions does NOT create money through multiple-deposit expansion? Multiple Choice... (a) Paying back a loan from the central bank (b) Selling additional stock shares in the bank. (c) Buying government bonds from a securities dealer (d) A decrease in the desired reserve ratio (e) Low unemploymentDetermine whether the statement is TRUE or FALSE. Support your answer based on the concepts of money supply.1. “If a commercial bank receives a currency deposit, cash is taken out of circulation. Thus, there will be a decrease of money supply.”