17.When the Bank of Canada fights inflation,. А. a decrease in the federal funds rate decreases aggregate demand В. a decrease in bank reserves decreases the quantity of money demanded С. an open market purchase increases the overnight loans rate D. a decrease in the supply of loanable funds raises the long-term interest rate and increases investment

17.When the Bank of Canada fights inflation,. А. a decrease in the federal funds rate decreases aggregate demand В. a decrease in bank reserves decreases the quantity of money demanded С. an open market purchase increases the overnight loans rate D. a decrease in the supply of loanable funds raises the long-term interest rate and increases investment

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 4CQQ

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Recently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states?
What is the sequence of events from a rise in the federal funds rate target range to a change in the inflation rate? Other short-term interest rates _______. A. and the long-term interest rate rise the same day B. rise the same day, but it takes a few months for the supply of loanable funds to decrease C. rise within a few weeks, but the long-run interest rate rises almost immediately D. rise the same day, but it takes a few months for the supply of loanable funds to increase
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3. The money supply, the loanable funds market, and interest rates Changes in the money supply affect the interest rate through changes in the supply of loans, Real GDP, the price level, and the expected inflation rate. True or False: The expectations effect describes a change in the interest rate due to a change in the price level. True False The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the price level. Adjust the following graph to show the effect of this increase in the price level. INTEREST RATE $ 24 2 QUANTITY OF LOANABLE FUNDS Which of the following refer to changes that affect both supply and demand in the loanable funds market? Check all that apply. The price-level effect The income effect The liquidity effect The expectations effect
During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would shift: a. the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. b. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. c. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left. d. the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.
The accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. a. Adjust the graph to demonstrate the effects of inflation expectations increasing from 2% to 4%. Market for Loanable FundsInterest rate (%)Quantity of loanable funds (billions of $)02468101214161820012345678910DS b. What is the real interest rate after the change in inflation expectations? 3% 2% 5% 7% c. Which effect below characterizes the relationship between inflation expectations and nominal interest rates? The Leontief Paradox The Inflation effect The Fisher effect The Pigou effect
12 Assume that the Saudi economy is in a recession and SAMA decides to implement an expansionary monetary policy. Use appropriately labeled graphs to trace the impact of an expansionary monetary policy on the: the money market, market for loanable funds aggregate goods market
In an economy, the banks prefer to keep 25% of their deposits in reserve. The population likes to keep their currency holdings equal to 10% of the deposits. Initially, there was zero money in the economy. Then the central bank buys $120 worth of T-bills from a household. The household receives $120 on its checking account. 1. the commercial bank formed reserves and gave out a loan. The population allocated the lent funds between the currency in pockets and checkable accounts. Before anything else happens, how much money is there in the economy at the end of Round 1? ANSWER: 288 For question 1 How is this answer obtained?, How would you solve question 2. 2. In Round 2, more lending, borrowing, and reserve formation takes place. How much is in DEPOSITS in the economy at the end of Round 2?
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Choose the correct answer and give short explaination. 5. Generally speaking, liberalization of financial markets when combined with a weak, underdeveloped domestic financial system tends toA. Strengthen the domestic financial system in the short runB. Create an environment susceptible to currency and financial crisesC. Raise interest rates and lead to domestic recessionD. None of the above
The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso. The Market for Loanable Funds in Mexico Mexican Net Capital Outflow 6 Supply 4 3 2 NCO Demand -1 -2 0 1 2 3 4 LOANABLE FUNDS (Billions of pesos) 1 2 3 4 NET CAPITAL OUTFLOW (Billions of pesos) -2 -1 6 7 8 -4 -3 -2 5 6 Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Initial state After capital flight REAL INTEREST RATE (Percent) REAL INTEREST RATE (Percent)