Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134079271
Author: CASE
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 25, Problem 2.3P
Sub part (a):
To determine
Impact of the sale of bonds by Fed to the public and to the government.
Sub part (b):
To determine
Whether the money multiplier is depended upon the marginal propensity to save.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If the money multiplier is 5 and the Fed sells $1 million worth of bonds, what happens to the money supply?
Group of answer choices
It decreases by $10 million.
It increases by $10 million.
It decreases by $5 million.
It increases by $5 million.
Consider an economy for which the current GDP is $800 billion, “the”
multiplier is 3, the income multiplier with respect to the money supply is
4, the money multiplier is 5, the marginal tax rate is 20%, the real interest
rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of
growth is 2%, the current money supply is $200 billion, the rate of money
supply growth is 10%, and financial innovations are decreasing money
demand by 1% per year. Marks are given for your explanations, not the
final answer.
What should be the long‐run rate of inflation?
What should be the price of a T‐bill due to mature in six months at
its face value of $1,000?
TRUE
FALSE
The more the Fed accommodates shocks to money demand, the larger the (government) spending multiplier.
Chapter 25 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
Similar questions
- The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: d) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supplyarrow_forwardIf the money multiplier is determined to have a value of 5 and the Fed wants to increase the money supply by $10 billion, then it must cause the monetary base to _____ by _____. a. increase....10 billion b. increase... 2 billion c. decrease....10 billion d. decrease....2 billion e. increase...5 billion f. decrease....5 billionarrow_forwardThe fed can sell treasury bills, also known as T-bills. True or falsearrow_forward
- In your modules, you were given a video on how "money is created" by the Fed using one of its tools. Thoroughly discuss this concept. Your discussion MUST include how the multiplier works.arrow_forwardQuestion 2 Suppose the federal funds rate is currently at its target level. Then suppose the demand for federal funds increases. Which one of the following statements is TRUE? Question 2 options: If the Fed does nothing, the federal funds rate would decrease Because the Fed sets the federal funds rate by fiat, the rate would remain unchanged without any further intervention The Fed would likely respond by increasing the supply of federal funds to keep the federal funds rate at its target level The Fed would likely reduce the demand for federal funds back to its original level by decreasing the reserve requirements for banks The Fed would likely respond by mandating a decrease in the federal funds rate to accommodate the change in demandarrow_forwardTargeting the federal funds rate ( is, is not ) as important a tool today as it was before the 2007-2009 financial crisis. During the financial crisis when the federal funds rate was near zero, the Fed ( did, did not ) wish to go lower than zero and came up with alternatives to influence interest rates and lending: the administered rates. Today, the Fed still sets a target for the federal funds rate but finds it more effective to change the administered rates. By doing that, the Fed can stimulate or restrict lending. The federal funds rate is the Feds policy rate and (is, is not ) useful when providing forward guidance. 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
- The money multiplier defines how much: Responses A. consumer demand increases following an increase in government spending. B. the money supply increases when investment banks underwrite corporate bond offerings. C. the money supply increases in response to an increase in bank deposits. D. GDP increases as a result of an increase in investment expenditure.arrow_forwardQuestion 33 Expansionary fiscal policy occurs when the government increases __________, decreases __________, or both to stimulate the economy toward expansion. spending; the money supply taxes; spending the money supply; spending spending; taxes the money supply; taxes Question 34 If your marginal propensity to consume is 0.6 and you get an additional $600 in income, you would spend ______ on consumption. $200 $240 $360 $1,000 $1,500 Question 35 If a bank has a required reserve ratio of 25% and there are $5,300,000 in deposits, what is amount of required reserves? $25,000 $280,000 $1,325,000 $2,275,000 $5,005,000arrow_forwardWhen the Fed buys government bonds, a- the money supply decreases and the federal funds rate increases. b- the money supply decreases and the federal funds rate decreases. c- the money supply increases and the federal funds rate decreases. d- the money supply increases and the federal funds rate increases.arrow_forward
- Suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes the multiplier to fall from 10 to 5. Under these conditions, How Many Dollars Worth of government bonds would the Fed would need to Buy or Sell in order to increase the money supply by $100?arrow_forwardThe banking system is vulnerable because a decrease in initial deposits in the banking system during a financial crisis would cause a a) Equal effect on money supply b) Equal but opposite effect on money supply c) Change of the Federal Reserve Chairman or Chairwoman d) Multiplier effect downward in the macroeconomyarrow_forwardSuppose that the reserve requirement for checking deposits is 16 percent and that banks do not hold any excess reserves. If the Fed sells $2 million of government bonds, the economy's reserves (either increase or decrease) by $______million, and the money supply will (increase or decrease) by $______million. Now suppose the Fed lowers the reserve requirement to 8 percent, but banks choose to hold another 8 percent of deposits as excess reserves. True or False: The money multiplier will increase. False True or False: As a result, the overall change in the money supply will increase. Truearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning