8. (3.9) Auditing the Fed? In recent years, several members of Congress have sponsored bills that would subject the Fed to audits of its monetary policy. This is a form of intensive Congressional oversight. What are the pros and cons of more Congressional oversight of the Fed?
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- 1. Suppose the current federal funds rate is 4 percent and the Fed wants to lower it to be within the range of 2.00-2.25 percent. (a) What will the Fed do-here in 2022-to accomplish this objective? (b) Next, explain how banks and nonbank financial institutions will react to what the Fed does? (c) Finally, explain the process by which what the Fed does will end up lowering the federal funds rate to within the range of 2.00-2.25 percent.10) If aggregate demand shifts left and the President and Congress want to use fiscal policy to reverse the change in output, they could increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.2. Consider an economy in which banks are subject to a 5 percent reserve requirement. Assume that banks lend as much as they legally can. (a) What is the money multiplier in this case? (5%) (b) Suppose that Avraam deposits $1,000 in the bank. How much money is created? (5%) 'https://youtu.be/iFDe5kUUyTO
- 14) The relationship between monetary policy and the time it takes for policy to change spending is an example of the benefits of "leaning against the wind" why fiscal policy is preferable because it does not suffer from lags. the condition that monetary policy affects the economy almost immediately the problem that monetary policy affects aggregate demand primarily by changing interest rates but it takes time for changes in interest rates to alter spending.12. As the outstanding debt of a nation becomes very large relative to the size of the economy, Group of answer choices -the borrowing cost of the government will decline. -lenders will have no choice but to hold the outstanding bonds and to buy the new ones as they are offered. -a country like the United States will have no choice but to default on the payments to bond holders. -if the country has a central bank, it will almost certainly resort to money creation to service the debt rather than directly default. Which is correct?5. Consider the following national-income model (with taxes ignored): Y - C(Y) – 1(i) – Go = 0 (0 < C' < 1; l'< 0) kY +L (i) – M0 = 0 (k = positive constant: L'< 0) (a) is the first equation in the nature of an equilibrium condition? (b) What is the total quantity demanded for money in this model? (c) Analyze the comparative statics of the model when money supply changes (monetary policy} and when government expenditure changes (fiscal policy).
- D7) Federal Reserve and their impacts on our economy. Role of Federal Reserve in EconomyQ11: (10%) Assume that the following data describe the condition of the commercial banking system: Total Reserves: $80 billion Transactions deposits: $800 billion Cash held by public: $100 billion Reserve requirement: 0.10 (a) How large is the money supply (M1)? (b) How large would the money supply be if the banks fully utilized their lending capacity?7 - If the government announces that it has increased the corporate tax rate from 25% to 35% and the income tax rate from 20% to 30%, what kind of policy will it follow?A) contractionary fiscal policyB) Supply-side policyC) contractionary monetary policyD) Expansionary monetary policyE) Expansionary fiscal policy
- 1. Financial institutions in the U.S. economy Suppose Edison would like to use $1,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new lab—a practice known as _______ (debt/equity) finance. Buying a bond issued by NanoSpeck would give Edison _______ (a claim to partial ownership in/ an IOU, or promise to pay, from) the firm. In the event that NanoSpeck runs into financial difficulty, ______ (Edison and the other bondholders/ the stockholders) will be paid first. Suppose instead Edison decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. a)The price of his shares will rise if NanoSpeck issues additional shares of stock. b)The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck…7-) If the money demand function is unstable and undergoes substantial, unpredictable changes, then the level of interest rates set by the central banks will provide more information about the stance of monetary policythan will the money supply. Is this statement true, false, or uncertain? Explain your answer. (ANSWERS that only state “True”, “False”, “Uncertain”)32 - What happens as a result of aggregate demand and aggregate supply if the money supply decreases?A) Prices fall – output increasesB) NoneC) Prices increase – output decreasesD) Prices fall – production decreasesE) Prices increase – production increases
