Macroeconomics (9th Global Edition)
9th Edition
ISBN: 9780134141534
Author: Andrew B. Abel, Ben Bernanke
Publisher: Pearson Global Edition
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 1AP
a)
To determine
To evaluate the maximum number of checks per month that can be written on
b)
To determine
To evaluate the way home equity lines of credit that allow home owners to write checks against the value of their homes.
c)
To determine
To evaluate if the stock market crashes, and furthur sharp declines in the market are widely feared.
d)
To determine
To evaluate the funds that are automatically transferred from savings to checking as needed to cover checks.
e)
To determine
To evaluate whether a crackdown reduces the illegal drug trade.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
An increase in required-reserve ratio by the Federal Reserve would:
cause M1 to contract (the supply of money would decrease).
cause M1 to expand (the supply of money would increase).
have no effect on M1
allow banks to store less gold in their vaults.
Which of the following statements is correct?
a.
A fall in the rate of interest will shift both the asset demand and the total demand curves to the right.
b.
A fall in real GDP will shift both the transactions demand and the total money demand curve to the right.
c.
A decline in real GDP will shift the transactions demand curve to the left but leave the total money demand curve unchanged.
d.
An increase in prices will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged.
e.
A decrease in prices will shift both the transactions demand and the total money demand curves to the left.
Suppose The Fed lowers the reserve ratio requirement for banks to increase the money supply in an economy. Which of the following best describes why this may not have the desired effect on M1 and M2?
A) The monetary base can at times be rigid to Fed policy.
B) Pessimistic banks may hold onto reserves even though the required reserve amount is lower.
C) Optimistic banks may lend out more reserves than anticipated.
D) There might not be a strong market for loanable funds.
Chapter 7 Solutions
Macroeconomics (9th Global Edition)
Knowledge Booster
Similar questions
- The Federal Reserve conducts a $30 million open-market purchase of government bonds. If the required reserve ratio is 15 percent, the largest possible increase in the money supply that could result is million, and the smallest possible increase is million.arrow_forwardIn the past, the Federal Reserve (Fed) mandated that member commercial banks must hold a certain fraction of their checkable deposits in the form of bank deposits at the Fed and/or vault cash because the sum of these two accounts equals reserves. The fraction of checkable deposits that banks must hold in reserve form is called the required reserve ratio (r). Suppose no excess reserves were in the banking system and the required reserve ratio(r) was 20%. The Fedbought a government bond worth $750,000 from Raphael, a client of First Main Street Bank. Raphael deposited the money into his checking account at First Main Street Bank. Given the required reserve ratio (r), First Main Street Bank was required to hold $_______ as required reserves and could $_______ to make loans.arrow_forwardCalculate M1 and M2 based on given information belowarrow_forward
- Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 4 2,000 10 10 5,000 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. 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. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic…arrow_forwardSuppose that money demand is given by the function MD=55+P, and the Bank of Canada maintains the supply of money at MS=$58b. If the Bank of Canada suddenly increases the money supply to MS'-$60b, what has happened to equilibrium value of money? a)It has decreased from 5 to 2 b)MD will shift, and the value of money will remain unchanged c)It has increased from 3 to 5 d) It has decreased from 1/3 to 1/5arrow_forwardExplain if this statement is true or false and provide equations whenever possible. Specialization in the financial markets has limited positive effects on the supply of money in circulationarrow_forward
- In defining money as M1 economists exclude time deposits on the grounds that _________. a. the intrinsic value of time deposits is nothing. b. the purchasing power of time deposits is much less stable than that of demand deposits and currency. c. they are not directly or immediately a medium of exchange. d. they are not recognized by the government as legal tender. e. They are quantitatively negligible as compared to checkable deposits.arrow_forwardWhich one of the following statements is true? Group of answer choices The total supply of money is smaller than the currency base. Banks can alter the total supply of money through their lending/borrowing activity. A central bank can control the total supply of money without caring too much about private banks’ activity, especially during credit crises. Bernanke can directly take over private banks.arrow_forwardAssume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 10 A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. 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. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions.…arrow_forward
- Let M subscript t denote the initial money supply. A friend of yours does not trust banks and keeps all his money in cash. He buys an old car for $20,000. The seller deposits the money in her checking account in Citibank. The bank keeps 10% of the deposit in reserve and lends the rest to Jack. Jack keeps $1,000 in cash and spends the remainder on NVIDIA stock. The seller of the stock, Jane, transfers the whole amount to her checking account in Wells Fargo. Wells Fargo keeps 20% of the amount in reserve and lends to rest to Joshua. Joshua keeps $1,600 in cash and spends the rest on treasury securities. The seller of the securities happens to be the Fed. A fire in Joshua's uninsured house destroys $600 of his cash. Let M subscript t plus 1 end subscript denote the resulting money supply. Calculate the change in the money supply, M subscript t plus 1 end subscript minus M subscript t.arrow_forwardKindly provide a correct answer and a detailed explanation with proper drawings; otherwise, I will have to give multiple downvotes. Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate. 5.Draw a picture of a money market equilibrium. Show the effect of the Federal Reserve increasing the money supply. Now draw a picture of the Planned Aggregate Expenditure/ Equilibrium Output picture. Show the effect of this change on the picture. Now draw an AS/AD picture. Show the effect of this change on that picture.arrow_forwardFind the money multiplier when the LRR is 62%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning