Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 4, Problem 3PA
(a)
To determine
The value of money supply.
(b)
To determine
The value of money supply.
(c)
To determine
Identify the value of money supply.
(d)
To determine
The value of money supply.
(e)
To determine
The value of money supply.
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An economy has a monetary base of 1,000 $1 bills. Calculate the money supply in scenarios.
a. All money is held as demand deposits. Banks hold 100 percent of deposits as reserves.
b. All money is held as demand deposits. Banks hold 20 percent of deposits as reserves.
c. People hold equal amounts of currency and demand deposits. Banks hold 20 percent of deposits as reserves.
Choose the correct answer
1. The neutrality of money refers to the idea that:
a) a change in money supply has no impact on output over any time period.
b) a change in money supply has no short run impact on output.
c) the real quantity of money is constant in the long term.
2.
a) only the central bank can create money.
b) commercial banks can create credit.
c) all UK currency is backed by central bank holdings of gold.
3.
a) UK currency is a commercial bank liability.
b) UK currency is a Bank of England liability.
c) UK currency is a central bank asset.
Question 3
(a) What are the functions of money?
(b) There were three tools discussed in this session that are used by central banks to affect the money supply. However, not all central bank uses all three. Find out what tools are used by the central bank in your region to affect the money supply
Question 4
Draw diagrams illustrating the impact on the demand for money, the supply of money and the equilibrium interest rate, of each of the following. Explain what is going on in the money market in each case.
(a) The central bank sells securities on the open market.
(b) The economy grows (GDP increases) but the central bank moves to keep interest rates constant.
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