If the Fed decided to decrease the Federal Funds Rate, (*the overnight rate that they lend to other banks) This meansthey are attempting to..O Decrease the supply of moneyO Slow the economy because inflation is escalatingO React to the trade war with China and restrict importsO Increase the supply of money

Answer: option d (increase the supply of money) Explanation: If the Fed decides to decrease the…

Answered: If the Fed decided to decrease the…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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Suppose that the reserve requirement for checkingdeposits is 10 percent and that banks do not hold anyexcess reserves.a. If the Fed sells $1 million of government bonds,what is the effect on the economy’s reserves andmoney supply?b. Now suppose that the Fed lowers the reserverequirement to 5 percent but that banks chooseto hold another 5 percent of deposits as excessreserves. Why might banks do so? What is theoverall change in the money multiplier and themoney supply as a result of these actions?
If the Bank of Canada sells Government of Canada Bonds in the open market, what will happen? O a. The money demand will shift to the right O b. The interest rates will fall Oc The monetary base and the money supply decrease O d. The monetary base and the money supply increase
Suppose the Bank of Canada buys $500,000 in bonds from Bank 1, and Bank 1 and all other banks have no excess reserves prior to this purchase a. What type of policy is this? OA Contractionary fiscal policy OB Expansionary monetary policy OC Expansionary fiscal policy OD Contractionary monetary policy OE None of the above b. What assets of the Bank of Canada change and by how much? Complete the second column of the following table by in each row entering "0" if the listod item is not an asset and/or does not change positive number representing an increase in an asset, or a negative number representing a decrease in an asset (Do not include the $ symbol in your answers) Change in Asset Cash and foreign deposits Bank notes in circulation Equity Government secunties Government of Canada deposits Members of Payments Canada deposits (reserves) Advance to members of Payments Canada c. What babilities of the Bank of Canada change and by how much? Complete the second column of the following…
If the Fed sells Treasury bills then O only the market rate of interest on Treasury bills will fall. O the price of Treasury bills will rise and the market rate of interest on Treasury bills will fall. O the price of Treasury bills will fall and the market rate of interest on Treasury bills will rise. Oonly the price of the Treasury bill will fall.
If the Fed sells $1 million of bonds and banks reducetheir borrowings from the Fed by $1 million, predictwhat will happen to the money supply
Which of the following will not affect the money market? O a. Money supply O b. Price of one good c. Expansionary monetary policy O d. Contractionary monetary policy
a. (i).Draw a graph showing equilibrium in the money market. Carefully label all curves andaxes and explainwhy the curves have the slopesthey do.(ii). Using the graph you prepared in a(i), illustrateand explain what happens when the Central Bankdecreases the money supply.(iii).When the Central Bankdecreases the money supply, theequilibrium level ofincome changes. Illustrate andexplain how
How can a central bank decrease the money supply? O a. By selling securities O b. All of the answers are correct O c. By decreasing the target overnight interest rate O d. By engaging in "quantitative easing"
9. What is the difference between monetary policy and fiscal policy? * is known as A-The tool used by the central bank to regulate the money supply in the monetary policy B-The tool used by the government in which it uses its tax revenues and expenditure policies to affect the economy is known as fiscal policy C-Monetary poliey is administered by the government of the country whereas fiscal policy is administered by the eentral bank of the country economy O A and B A only B only A and C TOSHIBA
Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
Suppose the central bank is following a constantmoney-growth-rate rule and the economy is hit witha severe economic downturn. Use an aggregate supply and demand graph to show the possible effects onthe economy. How does this situation reflect on thecredibility of the central bank if it maintains the moneygrowth rule? How does it reflect on the central bank’scredibility if it abandons the money growth rule torespond to the downturn?
QUESTION 12 The dollar depreciates by 20 percent against the Euro. Powell should O Increase the monetary base by 20 percent Reduce the monetary base by 18 percent Reduce the moriey 22 percent. Do nothing Not enough information to answer this question QUESTION 13 Banks become more optimistic due to an improvement in the economy. The money multiplier increases by 10 percent. Powell should O Increase the monetary base by 20 percent O Reduce the monetary base by 8 percent O Reduce the money 22 percent O Do nothing O None ofthe above QUESTION 14 President Biden increases the government deficit to 10 percent of GDP. Powell should O Increase the money supply by 10 percent O. Reduce the money supply by 10 percent O Reduce the money supply by 12 percent O Do nothing O We do not have enough information to answer.

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