1. When the Federal Reserve increases the money supply Question options: the liquidity effect predicts higher inflation while the fisher effect predicts lower inflation the liquidity effect predicts lower inflation while the fisher effect predicts higher inflation both the liquidity effect and the fisher effect predict lower inflation both the liquidity effect and the fisher effect predict higher inflation

1. When the Federal Reserve increases the money supply Question options: the liquidity effect predicts higher inflation while the fisher effect predicts lower inflation the liquidity effect predicts lower inflation while the fisher effect predicts higher inflation both the liquidity effect and the fisher effect predict lower inflation both the liquidity effect and the fisher effect predict higher inflation

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 2PA

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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?
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Question 4Suppose a country’s inflation level is higher than desired, and unemployment levels arelower than expected – the central bank decides that the economy is ‘overheated’ andattempts to use the appropriate monetary policy to deal with the situation. Describe,with the help of the appropriate figure, how a central bank might go about implementingsuch monetary policy, the subsequent effects this has on interest rates, the quantity ofmoney in the market, and the process through which this affects the level of expenditurein the economy.
Suppose that the Federal Reserve conducts an open market sale. This is considered monetary policy. In response, the size of the monetary base and the size of the money supply O contractionary; grows; grows by more expansionary: grows; grows by more contractionary; shrinks; shrinks by less O contractionary; shrinks; shrinks by more O expansionary; grows; grows by less
D) what kind of monetary policy might be helpful to stabilize the economy ( expansionary or contractionary)? E) what specific monetary policy tools does the federal reserve have available to use in this scenario? F) explain in detal, how should the federal reserve use each ofthese tools to maximize their effect in stabilizing the economy, what will be the likely effect of each monetary tool's use on the money supply , and the resulting impact on the economy
11. People view cell phone and its charger as complements to one another. If the price of cell phone increases, economists would expect: O The demand for charger will not change. O The demand for charger to increase. O The quantity of cell phone demanded to increase O The demand for charger to decrease. 12. Which one is not the role of the Fed? O The Fed also acts as a bank to the American citizens with net wealth is larger than 10 million dollar. O The Fed also acts as a bank to other banks by clearing checks, making electronic payments, and providing the currency that American's need and use every day. O The Fed also helps to supervise and regulate the nation's banks and works to promote a stable financial system for consumers, communities, and businesses The Fed implements monetary policies that promote maximum employment and m stable prices.
Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
3. With the help of graphs describe what is likely to happen to interest rates in the US economy now that, a. The FED has announced a tigher monetary policy due to rising inflation expectations b. Lower taxes have increased the likelihood of higher than expected corporate profits
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18. Suppose the Fed decreases the discount rate. How does this policy affect the money supply? OIncrease money supply ONo change in money supply ODecrease money supply
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