Bundle: Macroeconomics, Loose-leaf Version, 13th + MindTap Economics, 1 term (6 months) Printed Access Card
13th Edition
ISBN: 9781337742412
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 13, Problem 5QP
To determine
The money supply.
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Suppose the Federal Reserve conducts an open market purchase from a bank for
$300 million. Assuming the required reserve ratio is 10%, what would be the effect on
the money supply in each of the following situations?
If there are many banks, all of which make loans for the full amount of their excess
reserves, the money supply will increase by $ million. (Enter your response as a
whole number.)
Suppose the money supply is currently $500 billion and the Fed wishes to increases it by $100 billion.
Given a required reserve ration of 0.25, what should it do?
If it decided to change the money supply by changing the required reserve ratio, what change should it make? Why may the Fed be reluctant to change the reserve requirement?
The FED has recently decided to reverse the massive buildup of its holding of Treasury and mortgage bonds. Thus, they began to sell these Treasury securities in the financial markets to remove liquidity from them and reduce the supply of money and credit in the economy. This will create a shortage in the money market.
Chapter 13 Solutions
Bundle: Macroeconomics, Loose-leaf Version, 13th + MindTap Economics, 1 term (6 months) Printed Access Card
Ch. 13.1 - Prob. 1STCh. 13.1 - Prob. 2STCh. 13.1 - Prob. 3STCh. 13.3 - Prob. 1STCh. 13.3 - Prob. 2STCh. 13.3 - Prob. 3STCh. 13.3 - Prob. 4STCh. 13 - Prob. 1QPCh. 13 - Prob. 2QPCh. 13 - Prob. 3QP
Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Prob. 7QPCh. 13 - Prob. 8QPCh. 13 - Prob. 9QPCh. 13 - Prob. 10QPCh. 13 - Prob. 11QPCh. 13 - Prob. 12QPCh. 13 - Prob. 1WNGCh. 13 - Prob. 2WNGCh. 13 - Prob. 3WNGCh. 13 - Prob. 4WNGCh. 13 - Prob. 5WNGCh. 13 - Prob. 6WNGCh. 13 - Prob. 7WNGCh. 13 - Prob. 8WNGCh. 13 - Prob. 9WNGCh. 13 - Prob. 10WNG
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- Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds.arrow_forwardA mission of the Federal Reserve is to promote a combination of low interest rates and low unemployment. Why can it be difficult to accomplish both of these at the same time?arrow_forwardWhat steps can the Federal Reserve take to increase the money supply? a) The Federal Reserve can reduce personal income tax rates to encourage households to spend more money b) The Federal Reserve can require all banks to close by 4:00 pm on weekdays and remain closed on weekends. c) The Federal Reserve can increase reserves requirements for banks d) The Federal Reserve and raise the discount e) The Federal Reserve can buy US Treasury securities e) The Federal Reservearrow_forward
- The U.S. money supply (M1) at the beginning of 2015 was $2,683.3 billion broken down as follows: $1,165.7 billion in currency, $3.5 billion in traveler's checks, and $1,514.1 billion in checking deposits. Suppose the Fed decided to increase the money supply by decreasing the reserve requirement from 11 percent to 10 percent. Assume all banks were initially loaned up (had no excess reserves) and the quantity of currency and traveler's checks held outside of banks did not change. How large a change in the money supply would have resulted from the change in the reserve requirement? The money supply would change by $ billion. (Round your response to two decimal places and include a minus sign if necessary.)arrow_forwardExplain why the Reserve Supply is perfectly elastic at Discount Window Rate.arrow_forwardDuring times of rising inflation, the Fed will undertake monetary policy or "tight money policy."arrow_forward
- 5. Changes in the money supply The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. 45 Money Demand New MS Curve + New Equilibrium 4.0 3.5 3.0 2.5 2.0 INTEREST RATE (Percent) 55555 1.5 1.0 0.5 0 0.1 Money Supply 0.2 0.3 0.4 0.5 0.6 MONEY (Trillions of dollars) 0.7 0.8arrow_forwardThe Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury securities, usually Treasury bills. The increase or decrease of money in circulation helps the Fed to control inflation or deflation. This has an effect on your disposable income. Research the Federal Reserve system and money supply, then answer the following questions. Under what conditions would the Fed choose to decrease the money supply, how would it do so, and what is the goal of doing so? How does the Fed factor inflation into its actions?arrow_forwardSuppose the Fed announces that it is raising its target interest rate by 25 basis points, or 0.25 percentage point. To do this, the Fed will use open-market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to and the quantity of output demanded to at each price level. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
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