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- Question 3Explain in detail the process of Monetary Policy transmission of an increase in the cashinterest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cashrate ripple through the economy and lead to the target policy goal. (Three connected diagramsshould be used: (1) money supply and demand (2) investment demand schedule (3) AS/ADdiagram. Interest rates is the variable that connects the first and second diagram).The Fed's target for the federal funds rate A)is a goal that is rarely acheived because the fed can determine only the money supply B) is an extra policy tool for the central bank, in addition to and independent of the money supply C) commits the fed to set a particular money supply so that it hits the annouced target D) matter to banks that borrow and lend federal fund but does not influence aggregate demand.Explain in detail the process of Monetary Policy transmission of a decrease in the cashinterest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cashrate ripple through the economy and lead to the target policy goal. (Three connected diagramsshould be used: (1) money supply and demand (2) investment demand schedule (3) AS/ADdiagram. Interest rates is the variable that connects the first and second diagram).
- Suppose that a central bank pursues expansionary monetary policy by purchasing bonds. Classify each of the variables listed by the policy's short run effect upon them. Answer bank in the images Bellow Classify themThe Fed’s target for the federal funds ratea. is an extra policy tool for the central bank, inaddition to and independent of the money supply.b. commits the Fed to set a particular money supplyso that it hits the announced target.c. is a goal that is rarely achieved because the Fedcan determine only the money supply.d. matters to banks that borrow and lend federalfunds but does not influence aggregate demand.Question 4Suppose a country’s inflation level is higher than desired, and unemployment levels arelower than expected – the central bank decides that the economy is ‘overheated’ andattempts to use the appropriate monetary policy to deal with the situation. Describe,with the help of the appropriate figure, how a central bank might go about implementingsuch monetary policy, the subsequent effects this has on interest rates, the quantity ofmoney in the market, and the process through which this affects the level of expenditurein the economy.
- To decrease the money supply, the Fed can: a) decrease the RRR b) conduct open market purchases c) increase the discount rateCentral bankers in Widgetsa have decided that inflation is too high and contractionary monetary policy is needed. First, position LRAS where it would be if contractionary policy is needed. Then, show the short‑run results of this policy action by shifting the appropriate curves on the graphs. graphs in images. Select all of the actions that are contractionary policy choices the central bankers could use. decrease reserve requirements sell bonds to banks increase taxes decrease government spending raise the interest rate for last‑resort loansUse the dynamic aggregate demand and aggregate supply model to illustrate and explain the monetary policy that the Reserve Bank of Australia implemented when Australia’s inflation rate increased from 6.1% in June 2022 to 7.4% in January 2023. [Hint: Make sure you discuss how the RBA uses cash rate target and open market operations in monetary policy. Include an economic diagram to demonstrate your answers.]
- identify the expansionary monetary policy implemented y the central bank. and explain On Tuesday, the Central Bank, also in response to the covid19 precautions, lowered the repo rate to 3.5 percent and lowered the reserve requirement to 14 percent, in order to lower lending rates and increase liquidity in the financial system.The central back in an economy is charged with the responsibility of controlling a nation's money supply to achieve full employment and stable prices. You are a technocrat in the central bank, who is drafted on a special committee to assess the implications of contradictionary monetary policies being pursued. The Scenario now facing Grossmania is this: “The national economy is sluggish as a result of tight contradictionary monetary policies over the past two years.” Required: 2. Explain one reason why inflation can prevent a country from achieving stablilityThe increases in oil prices in 1974 due to OPEC's actions caused the short-run aggregate supply curve to shift to the left. Canada saw increases in both unemployment and inflation as a result. The Bank of Canada could not address both increased unemployment and increased inflation because OA) contractionary monetary policy which would lower inflation would further increase unemployment. O B) expansionary monetary policy which would lower unemployment would further increase inflation. OC) Canadians at the time preferred high unemployment to high inflation. O D) Both A and B are correct answers.
