If desired investment spending is relatively sensitive to changes in interest rates, then monetary policy could be very in reducing expenditure in expanding useful because it would be during inflationary periods and expenditure during recessionary periods. O a. Very ineffective, very effective. O b. Very ineffective, very ineffective. O c. Very effective; very effective. Od. Very effective, ineffective. O e Somewhat effective; very ineffective.
Q: Suppose the Federal Reserve Branch Bank in Memphis purchases, for $19.95, a painting of Elvis…
A: Given that the central bank bought a painting worth $19.95, it has paid this amount to the owner of…
Q: Suppose the economywide demand for money is given by: M = P(0.3Y − 25,000i). The price level P…
A: Md = P (0.3 Y - 25000i) P = 3 Y = 8000 At equilibrium, Md = Ms.
Q: If desired investment spending is relatively sensitive to changes in interest rates, then in…
A: If desired investment spending is relatively sensitive to changes in interest rates, then changes in…
Q: the equation of exchange is given by M x V-PxQ, where M is the money supply, V is the velocity of…
A: The measure that depicts the final value of goods and services in an economy during a specified span…
Q: Refer to Figure 34-2. If the monery-supply curve MS on the left-hand graph were to shift to the…
A: The money market model describes the interaction of the money demanded and the money supplies. The…
Q: What effect a selling bond will have on the money market? Explain using bond prices.
A: Hi Student, thanks for posting the question. As per the guidelines I can answer the first question.…
Q: The hysteresis hypothesis believes that. O a. Money is neutral in the long run. O b. An economy…
A: Economic growth and business cycles have traditionally been considered independently. The dependency…
Q: Consider the market for money in the liquidity preference framework. If the Bank of Canada decreases…
A: Considering the liquidity preference, if there is decrease in the money supply by the bank of…
Q: Other things constant, the quantity of money demanded varies: O inversely with the unemployment…
A: In economics, money demand is the desired holding for assets in the form of money. The supply of…
Q: Which of the following are examples of monetary policy that decrease aggregate demand? O A. a…
A: Aggregate demand is a term used in economics to describe the total amount of demand for all finished…
Q: Which of the following would lead to a decrease in the equilibrium interest rate? O a. Decrease the…
A: Demand curve of money shows the amount of money demanded at the particular interest rate whereas,…
Q: Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is…
A: Since there are multiple sub-parts in the question, only the first three sub-parts will be answered…
Q: Refer to table below. Suppose that the Fed had decided to set the US. money supply in December 1932…
A: Reserve deposit ratio (rdr) is the proportion of the total deposits commercial banks keep as…
Q: Which of the following would cause the Fed to raise interest rates even though the rate of inflation…
A: Answer: Potential GDP: Potential GDP refers to the full employment level of GDP. If the actual GDP…
Q: Given: C- 700 + .80 (1- t)Y t-0.25 1=210 -75i G= 1000 TR=100 L-0.20Y- 40i M/P = 800 Required: 1.…
A: “Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: In general, if the Fed increases its target for the federal funds rate, O A. short- term nominal…
A: A target rate is a primary interest rate used by a centralized bank to direct monetary policy…
Q: Which of the following pairs of events will definitely lead to a decrease in the equilibrium…
A: please find the answer below.
Q: If desired investment spending is relatively sensitive to changes in interest rates, then monetary…
A: Monetary Policy:- The monetary policy can be defined as central bank's macroeconomic policy. It is a…
Q: Automatic stabilisers imply: Select one: O a. an automatic increase in government spending or…
A: Automatic stabilizers offset the fall in real GDP when the economy contracts, and offset the rise in…
Q: Assume we are currently in an equilibrium where actual output is equal to potential output. If…
A: Equilibrium in the goods and services market is reached at the intersection of AD and AS curves.
Q: Question: In the IS-LM model an increase in . . increases the demand for .. by . . the ..........…
A: The IS curve shows all the combinations of interest rate and real gross domestic product (GDP) where…
Q: Suppose the government borrows funds to finance the purchase of state-of-the-art IT infrastructure.…
A: Here, it is given that government borrows funds to purchase state-of-the-art IT infrastructure.
Q: How does the demand for money curve shift? O If shifts rightward as income level decreases O If…
A: Demand for money curve shift leftwards when interest rate increases. Demand for money is the desire…
Q: Exhibit: IS-LM to Aggregate Demand Interest rate, r LM₁ (P = P₁, M = M₁) LM₂ (P = P₂, M = M₂) LM₂ (P…
A: "In macroeconomics, LM curve depicts the combinations of income/output Y and interest rate r which…
Q: Assume individuals consider only the medium-run effects of changes in future macro variables when…
A: Contractionary monetary policy is done in order to reduce the aggregate demand, decrease output, and…
Q: If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply…
A: Here we calculate the money supply by using the money multiplier by using the given information , so…
Q: Ceteris paribus, suppose the money supply greww at an average annual compounded rate of 7%, velocity…
A: For inflation rate: velocity growth rate + money supply growth rate=inflation + real output growth…
Q: Assume that the four-sector model is at play. C+l+G. All expenditures are autonomous. Given: C-700 +…
A: The IS-LM model shows the interaction between the goods market and the money market. The IS curve is…
Q: In the short run, if the Federal Reserve adds liquidity to the economy, then... O A. the real…
A: In an economy, when Centra banks adds liquidity, it implies that the bank implements expansionary…
Q: Suppose that the Fed sets the interest rate and adjusts the money supply accordingly (i.e.,…
A: a) If the economy is in recession then there will be a leftward shift in IS curve because the demand…
Q: Which of the following is a policy tool of the Federal Reserve that it actively uses to control the…
A: Monetary policy is a set of tools used by a country's central bank to encourage long-term economic…
Q: Under what circumstances does aggregate demand increase? Aggregate demand increases if expected…
A: Since you have asked a question with multiple subparts, we will solve the first three subparts for…
Q: n When would an increase in the money supply have the least effect on GDP and the most effect on…
A: Increase in money supply leads to increase in both price and output in the short run.
Q: If the Fed is pursuing a fixed interest rate target, an increase in the money supply will be…
A: "Money demand is downward sloping curve depicting a negative relationship between interest rate and…
Q: . Assume that the monetary policy curve is given byr = 1.5 + 0.75p.a. Calculate the real interest…
A: Answer: Given, Monetary policy curve: r=1.5+0.75pwhere,p=inflation rate Calculation: (a). Interest…
Q: An increase in the level of nominal aggregate output (Y) and the purchase of government securities…
A: An increase in the level of nominal aggregate output (Y) and the purchase of government securities…
Q: Assume, in the 3rd quarter of 2018 in the U.S., the velocity of money was 3.08 and the M2 money…
A: Real gross domestic product is a macroeconomic measure of the value of economic output adjusted for…
Q: If money supply increases 10%, and we assume a constant money velocity: O We should have a price…
A: The quantity theory of money states that M × V = P × Y, where M is the money supply, V is the…
Q: Assume contractionary monetary policies have had the effect of lowering inflation rates from a 6%…
A: "Monetary policy is the actions taken by the central bank in order to control money supply and…
Q: Monetary policy has the largest impact on desired aggregate expenditure when the investment demand…
A: Monetary policy is operated by the central bank of country. The change in the money supply causes…
Q: The income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand…
A: The money market includes the money demand and money supply in the economy. The point where the…
Q: Monetary policy becomes more effective as Select one: a. the income tax increases O b. the interest…
A: Monetary Policy: This is a policy of the central bank. Through which central bank manages the…
Q: Which of the following statements are correct? The multiplier is: Select one or more: O a. the ratio…
A: "Correct answer is option b."
Q: If economists say that monetary policies cannot affect GDP in the long run, what do they mean? O a.…
A: Economists generally said that monetary policies are ineffective in influencing the long-run GDP of…
Q: 5) Suppose that: Mp = 800 + 0.2Y – 5000(r + n) P M5 = 1000 + 0.1Y – 3000n a. If n = 0.1 ;r = 0.1 ;Y…
A: Hi! Thank you for the question but as per the guidelines, we only answer 3 subparts of a question at…
Q: The monetary multiplier is 3 and the change in the monetary base is $100,000. How much will the…
A: Given The money multiplier is 3 Change in the monetary base is $100,000. We have to calculate the…
Q: o Figure 35-3. If the economy starts at C and the money sup
A: Money Supply alludes to add up to volume of money held by open at a specific mark of time in an…
Q: If the Bank of Canada sells Government of Canada Bonds in the open market, what will happen? O a.…
A: The central bank conducts open market operations (i.e., buying and selling of government bonds) in…
Q: Which of the following would be classed as an expansionary monetary policy? O A. A decrease in the…
A: The monetary policies are those policies which are enacted by the central bank of a country to…
Q: Figure 2 LRAS SRAS AD YN Y, Y. Refer to Figure 2. Suppose the economy is currently at point A. To…
A: The point 'A' is right of the LRAS so there is an inflationary gap and the actual output is above…
Step by step
Solved in 2 steps
- Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?. Assume that the monetary policy curve is given byr = 1.5 + 0.75p.a. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%.b. Draw a graph of the MP curve, labeling the pointsfrom part (a).c. Assume now that the monetary policy curve is givenby r = 2.5 + 0.75p. Does the new monetary policycurve represent an autonomous tightening or loosening of monetary policy?d. Calculate the real interest rate when the inflation rateis 2%, 3%, and 4%, and draw the new MP curve,showing the shift from part (b).Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
- Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.D) what kind of monetary policy might be helpful to stabilize the economy ( expansionary or contractionary)? E) what specific monetary policy tools does the federal reserve have available to use in this scenario? F) explain in detal, how should the federal reserve use each ofthese tools to maximize their effect in stabilizing the economy, what will be the likely effect of each monetary tool's use on the money supply , and the resulting impact on the economySuppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?
- Suppose the monetary policy curve is given byr = 1.5 + 0.75p, and the IS curve is given byY = 13 - r.a. Calculate an expression for the aggregate demandcurve.b. Calculate the real interest rate and aggregate outputwhen the inflation rate is 2%, 3%, and 4%.c. Draw graphs of the IS, MP, and AD curves, labelingthe points from part (b) on the appropriate graphs.Occasionally, the Federal Open Market Committee (FOMC)sets a policy designed to “track” the interest rate. This meansthat the FOMC is pursuing policies designed to keep the interestrate constant. If, in fact, the Fed were acting to counter anyincreases or decreases in the interest rate to keep it constant,what specific actions would you expect to see the Fed take if thefollowing were to occur? (In answering, indicate the effects ofeach set of events on Y, C, S, I, Ms, Md, and r.)a. An unexpected increase in investor confidence leads to asharp increase in orders for new plants and equipment.b. A major New York bank fails, causing a number of worried peo-ple (not trusting even the FDIC) to withdraw a substantialamount of cash from other banks and put it in their cookie jarsa) Which of the follwing monetary policy actions can be used to close an inflationary gap?O No change in the money supply to keep interest rates constant.ODecrease the money supply to decrease interest rates,OIncrease the money supply to increase interest rates.O Increase the money supply to decrease interest rates.O Decrease the money supply to increase interest rates. b) Assume the economy is initially at full-employment equilibrium. Suppose the economy slows down and uncertainty increases, reducing consumption and investment expenditures, in the short run, this shock willcause the economy to fall below full enployment. To move the economy to a full-employment equilibrium, the Fed could:O. decrease government spendingO. increase corporate tax ratesO. lower the federal fund rate targetO. increase government spending O. raise interest rates
- Suppose that the reserve requirement for checkingdeposits is 10 percent and that banks do not hold anyexcess reserves.a. If the Fed sells $1 million of government bonds,what is the effect on the economy’s reserves andmoney supply?b. Now suppose that the Fed lowers the reserverequirement to 5 percent but that banks chooseto hold another 5 percent of deposits as excessreserves. Why might banks do so? What is theoverall change in the money multiplier and themoney supply as a result of these actions?The central bank of Trinidad and Tobago decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for Trinidad and Tobago for 2014 - 2019.Based on the data from Trinidad, do you agree with thecentral bank’s decision to pursue a contractionary monetary policy? Explain why orwhy not.Now, consider an economy in which the demand for money is of the formY(1 + it)for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The REAL INTEREST RATE, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the 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. Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1,M1 / P1, and, E1π2. B. Find the inflation rate, nominal interest rate, real money balance in period 2,and expected inflation in period 3, given the information available in period 2. (π2, i2, M2 / P2 and E2π3.) C. Find the inflation rate, nominal interest rate, and real money…