Question 1. Suppose that the central bank buys $6 billion of bonds on the open market and the banks wish to hold reserves of 8 percent. A. What is the largest amount the money supply could ultimately increase? Explain. B. What would the money multiplier be in this case? Question 2. Suppose the government multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What is the ultimate change in the government's budget deficit G – T if government spending increased by $10 billion and at the same time the central bank increased the money supply by $5 billion? (Remark: not all the information stated above is needed to answer this question. To answer this question you need to figure out by how much output changes, then figure out the change in tax revenue). Question 3. Consider an economy in which the real level of income is $500B in 2010 dollars, the government multiplier is 3, the money multiplier is 5, the income multiplier with respect to the money supply is 2, the current price index is 120 (base year 2010), the current money supply is $200B, inflation is 5%, and velocity is constant. (Remark: not all the information stated above is needed to answer this question). A. In this problem, the velocity of money is B. Ignoring inflation, the change in nominal income resulting from a central bank purchase of $3B bonds is Question 4. Suppose banks face a 15% required reserve ratio and the Fed operates a discount window policy which allows its member banks to meet 20% of its reserves by borrowing from the Fed. If banks prefer to be loaned up (hold 0 excess reserves) one can expect a $18B open market purchase to ____ the money supply by _____, assuming no leakages. Question 5. Circle one response below. "News of economic weakness last week cleared the way for higher bond prices. The New York market moved quickly to capitalize on this good bad news: prices shot up more than a point in minutes." Bond prices rose because A) inflation expectations fell B) higher prosperity is coming C) unemployment is expected to fall D) the Fed is expected to raise interest rates Briefly state why you believe the answer you selected is the correct one. Question 6. “The Federal Reserve announced today that monetary growth for the last quarter was substantially higher than the 1.5% growth analysts expected.” Suppose a 1-year $10,000 T-Bill trading at discount at $9708.74 before the Fed’s announcement fell to $9389.67 immediately after the announcement. Given this information, by how many percentage points (also referred to as basis pointsi ), approximately, have inflation expectations changed. Question 7. Suppose currently an economy is experiencing $2B of extra taxes and $1b lower unemployment insurance payments than what would be the case at its long-run average rate of unemployment. There is a budget deficit of $42B, a publicly-held national debt of $400B, a nominal GDP growth rate of 5%, and an annual seigniorage of $4B. The structural deficit is?

Question

Question 1. Suppose that the central bank buys $6 billion of bonds on the open market and the banks wish to hold reserves of 8 percent. A. What is the largest amount the money supply could ultimately increase? Explain. B. What would the money multiplier be in this case?

Question 2. Suppose the government multiplier is 3.5, the money multiplier is 4.5, the income multiplier with respect to the money supply is 2.5 and the marginal tax rate is 20 percent. What is the ultimate change in the government's budget deficit G – T if government spending increased by $10 billion and at the same time the central bank increased the money supply by $5 billion? (Remark: not all the information stated above is needed to answer this question. To answer this question you need to figure out by how much output changes, then figure out the change in tax revenue).

Question 3. Consider an economy in which the real level of income is $500B in 2010 dollars, the government multiplier is 3, the money multiplier is 5, the income multiplier with respect to the money supply is 2, the current price index is 120 (base year 2010), the current money supply is $200B, inflation is 5%, and velocity is constant. (Remark: not all the information stated above is needed to answer this question). A. In this problem, the velocity of money is B. Ignoring inflation, the change in nominal income resulting from a central bank purchase of $3B bonds is

Question 4. Suppose banks face a 15% required reserve ratio and the Fed operates a discount window policy which allows its member banks to meet 20% of its reserves by borrowing from the Fed. If banks prefer to be loaned up (hold 0 excess reserves) one can expect a $18B open market purchase to ____ the money supply by _____, assuming no leakages.

Question 5. Circle one response below. "News of economic weakness last week cleared the way for higher bond prices. The New York market moved quickly to capitalize on this good bad news: prices shot up more than a point in minutes." Bond prices rose because A) inflation expectations fell B) higher prosperity is coming C) unemployment is expected to fall D) the Fed is expected to raise interest rates Briefly state why you believe the answer you selected is the correct one.

Question 6. “The Federal Reserve announced today that monetary growth for the last quarter was substantially higher than the 1.5% growth analysts expected.” Suppose a 1-year $10,000 T-Bill trading at discount at $9708.74 before the Fed’s announcement fell to $9389.67 immediately after the announcement. Given this information, by how many percentage points (also referred to as basis pointsi ), approximately, have inflation expectations changed.

Question 7. Suppose currently an economy is experiencing $2B of extra taxes and $1b lower unemployment insurance payments than what would be the case at its long-run average rate of unemployment. There is a budget deficit of $42B, a publicly-held national debt of $400B, a nominal GDP growth rate of 5%, and an annual seigniorage of $4B. The structural deficit is?

 

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.
Tagged in

Related Finance Q&A

Find answers to questions asked by students like you.

Q: Define the terms covariance and correlationcoefficient. How are they related to one another,and how ...

A: Covariance refers to the situation which tells about the association between two variables how they ...

Q: For purposes of measuring a firm’s leverage, should preferred stock be classified as debt orequity? ...

A: We cannot categorize preferred stock as entirely debt or equity. It is a mixture and is alike bonds ...

Q: 1). The DeBeers company is a profit-maximizing monopolist that exercises monopoly power in the distr...

A: Hey, since there are multiple questions posted, we will answer the first question. If you want any s...

Q: A proposed new investment has projected sales of $635,000, Variable Costs are 44% of sales, and Fixe...

A: Formulas:

Q: 1) The best definition of assets is the cash owned by the company.   ...

A: “Since you have asked multiple question, we will solve the first question for you. If you want any s...

Q: What is a warrant?

A: Warrant: A warrant is a security that permits the holder to purchase the underlying stock of the del...

Q: What is Sensitivity Analysis and why is it useful?

A: The sensitivity analysis is utilized to comprehend the impact of a lot of autonomous factors on some...

Q: 4. AL ZAIN Itd uses a periodic inventory system. Its records show the following for the month of May...

A: Excel Spreadsheet:

Q: 14

A: ANNUAL DIVIDEND = $4 DIVIDEND GROWTH = 8% STOCK PRICE = $85