The statement is true or false.

Question

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Answer 1

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

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Students have asked these similar questions

Naked Economics: Undressing the Dismal Science Book by Charles Wheelan Please refer to the chapter titled, "The Federal Reserve," in the Naked Economics book to answer this question. Which of the below statements IS NOT CORRECT about the term "inflation" or its effect, as Charles Wheelan explains the term in this chapter? 1) Inflation favors retired people with fixed incomes and increases the purchasing power of their income. 2) Inflation redistributes wealth arbitrarily, as unexpected bouts of inflation are good for debtors and bad for lenders. 3) Massive inflation (or, hyperinflation) distorts the economy, as workers rush to spend their cash before it becomes worthless. 4) The most instructive way to think about inflation is not that prices are going up, but rather that the purchasing power of the dollar is going down.

Please choose between the options for each sentence correctly!! The Swedish central bank, Swede Bank, currently has an inflation rate target of 2%. Inflation in the past few years has been lower than this (and is currently below this), so the population is expecting the Swede Bank to undertake policies to boost inflation.These expectations will cause the SRAS to (shift upward, shift downward, remain unchanged) (it is a movement along the curve change ambiguously), the LRAS to (shift upward, shift downward, remain unchanged (it is a movement along the curve) change ambiguously), the short-run Phillips curve to (shift upward, shift downward, remain unchanged) (it is a movement along the curve) change ambiguously), and the long-run Phillips curve to (shift upward ,shift downward, remain unchanged (it is a movement along the curve)change ambiguously).

Name three (3) policy tools that a Central bank can use to constrain the rate of inflation and explain how one (1) of these works in accomplishing its objective.

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

Answer 6

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

Answer 7

Chapter 23, Problem 1QAP

a

To determine

To find: The statement is true or false.

Answer 8

a

Expert Solution

Explanation of Solution

False.

It is untrue that seignorage is responsible for the increase in inflation in OECD countries. However, seignorage is one of the argument which leads to an increase in the inflation rate in such countries. But at very low-interest rates, there is a little effect of seignorage.

There is another argument behind the increase in the inflation rate is when the central bank decreases its interest rate to almost 0 percent, which stimulates inflation.

Answer 9

a

Expert Solution

Answer 10

a

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

Answer 13

b)

To determine

To find: Fighting inflation is the only Fed’s policy.

Answer 14

b)

Expert Solution

Explanation of Solution

Uncertain.

Fed cannot ignore the other economic issues that an economy faces. So, targeting inflation cannot be the only target however, it can be one of the most important targets. As the economy faces various other economic issues and uncertainties, its monetary policy and fiscal policy combination effectiveness are also sometimes necessary.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

Answer 19

c)

To determine

To find: Inflation and money growth moved together from 1970 to 2009 or not.

Answer 20

c)

Expert Solution

Explanation of Solution

False.

There was no such relation seen between inflation and M1 growth during this period. Although in the 1980s, inflation had steeply increased during the 1980s while M1 growth took time to increase till the 1990s. There was no such relation found in both the short and long-run periods.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

Answer 25

d)

To determine

To find: People have trouble in making decision regarding nominal and real values.

Answer 26

d)

Expert Solution

Explanation of Solution

False

People are unable to distinguish between the real interest rate and the nominal interest rate, which leads to money illusion. So, it leads to a wrong decision by the people in the economy. The real interest rate is a real phenomenon and the nominal interest rate is a monetary phenomenon. For example, money illusion exists in the following situation:

When inflation increases by 3% and the wage rate increases by 1%. And in another scenario the inflation rate increases by 2%. They both are the same situation but people will be unable to judge between both scenarios.

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

Answer 31

e)

To determine

To find: Central inflation have inflation rate of 4% around the world.

Answer 32

e)

Expert Solution

Explanation of Solution

False.

Most of the central banks do not have a target of 4%, rather they consider 2% as the optimal inflation rate. This is because, at a zero inflation rate, the central bank cannot use its monetary policy while at a high inflation rate, unemployment increases which both cause economic issues.

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

Answer 37

f)

To determine

To find: There is a positive relation between inflation rate and capital gains.

Answer 38

f)

Expert Solution

Explanation of Solution

True

As inflation increases, it leads to a monetary increase in money value, thereby nominal wealth also increases. Tax rates are imposed on nominal wealth which is increased due to the inflation rate, thereby increasing the tax rate on capital gains.

Answer 39

f)

Expert Solution

Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

Answer 43

g)

To determine

To find:Taylor rule suggests central bank regarding inflation and recession.

Answer 44

g)

Expert Solution

Explanation of Solution

True

The Taylor rule suggests that the Fed should increase its policy rates when inflation is high or when GDP is far more than the potential level of output. Moreover, Taylor's rule also suggests that the Fed decreases its policy rates when inflation is low.

Answer 45

g)

Expert Solution

Answer 46

g)

Expert Solution

Answer 47

Expert Solution

Answer 48

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

Answer 49

h)

To determine

To find: Zero lower bound was a regular feature of monetary policy.

Answer 50

h)

Expert Solution

Explanation of Solution

False

During the early years of the 1990s, when inflation targeting began, inflation was very high than today’s rate and liquidity trap was a theoretical phenomenon that did not exist at that time.

Answer 51

h)

Expert Solution

Answer 52

h)

Expert Solution

Answer 53

Expert Solution

Answer 54

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

Answer 55

i)

To determine

To find:Quantitative easing is an effective monetary tool to affect yield on assets.

Answer 56

i)

Expert Solution

Explanation of Solution

True

With the use of quantitative easing tools, the central bank can purchase assets from the market, which would increase the money supply in the economy, thereby increasing the inflation rate and decrease borrowing rates.

Answer 57

i)

Expert Solution

Answer 58

i)

Expert Solution

Answer 59

Expert Solution

Answer 60

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

Answer 61

j)

To determine

To find: Central bank can provide liquidity to institutions which are not regulated.

Answer 62

j)

Expert Solution

Explanation of Solution

True,

As the central bank is the lender of last resort, so any financial institution which is in crisis needs help from the central bank. It provides liquidity to the financial institution so that damage can be reduced and avoid depression in the economy.

Answer 63

j)

Expert Solution

Answer 64

j)

Expert Solution

Answer 65

Expert Solution

Answer 66

k)

To determine

To find: The statement about crises is correct or not.

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.

Answer 67

k)

To determine

To find: The statement about crises is correct or not.

Answer 68

k)

Expert Solution

Explanation of Solution

True

The Basel II and Basel III agreements are examples of actions taken as a consequence of the crises. These established a minimum ratio of capital to risk-weighted assets that are held by banks.