2. Graphically show how each of the following events affect nominal interest rates. (a) Recession hits the economy (b) Federal Reserve tries to decrease the asset prices
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- 1. Housing bubble: In the early 2000s, there was a housing bubble in the United States. Banks were issuing mortgages to people who could not afford to pay them back. This led to a housing market boom, with housing prices skyrocketing. Explain with a graph please.3. Draw and correctly label a graph of the money market. On your graph demonstrate each of the following: (a) Identify the equilibrium interest rate. (b) Explain if the rate you identified in part (a) is a nominal or real rate. (e) On your graph demonstrate the effect of federal government engaging in a budget deficit reduction plan. (d) On your graph demonstrate the effect of the Federal Reserve engaging in a contractionary monetary policy.Economics If the Fed increases the money supply by 0.5%, will the value of money increase or decrease? Will the price level increase or decrease? Illustrate with a graph. (b) Now suppose the demand for money decreases. Does this result in inflation or deflation? Explain.
- For each of the following economic changes, predict what will happen to equilibrium interest rate and quantity of money in the financial market. Sketch a demand and supply diagram to support your answers. Banks that have made loans find that a larger number of people than they expected are not repaying those loans. 2.Because of the pandemic, people become uncertain about their economic future. 3. BSP buys dollars from the public to increase its foreign exchange reserves.9. Salaries in the financial sector are often composed of a flat wage, and a bonus paid when firm does well. Does this unusual structure make workers in the financial sector happy?Please kindly assist with the following. Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Which of the following will cause the demand curve for money to shift to the right?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available. A budget deficit occurs when:(a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation. An example of an indirect tax is: (a) income tax. (b) secondary tax on dividends.(c) company tax.(d) value added tax.Which one of the following statements is INCORRECT? (2)(a) Provincial government forms…
- Exercise 2 Suppose that money demand is given by MD= $Y(0.25 – i) where $Y is $100. Also, suppose that the supply of money is $20. a. What is the equilibrium interest rate? b. If the Federal Reserve Bank in the USA wants to increase i by 10 percentage points, at what level should it set the supply of money?5. Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in money supply. a. The Federal Reserve System buys bonds. (Enter your response here.) b. The Federal Reserve System auctions credit. (Enter your response here.) c. The Federal Reserve System raises the discount rate. (Enter your response here.) d. The Federal Reserve System raises the reserve requirement. (Enter your response here.) I1. True or False a) John Maynard Keynes listed three types of motives for people holding money—transactions, precautionary, and speculative. b) Starting from equilibrium in the money market, suppose the money supply increases. Other things being equal, this will cause an excess demand for money, leading people to sell bonds. c) If the Fed uses its tools to expand the money supply, bond prices will be bid up and interest rates will fall. d) Investment is lowered by expansionary monetary policy. e)Monetarists argue that the Treasury's conduct of fiscal policy is the most important factor affecting real GDP and interest rates.
- 23. An understanding of the state of the economy, projections on economic growth, the floor framework, and the way the Federal Reserve works allows you to: a. understand which way interest rates might change. b. accurately forecast the spread between short-term and long-term interest rates. c. predict the size of the future output gap. d. predict the exact inflation rate in the future.3. Suppose that consumers have a major change in their consumption/savings preferences. As a result of a serious recession they decide to consume less and save more. Illustrate a graph that shows how this would affect the demand and supply for borrowing money with credit.9) Consider a credit boom where bank lending increases a) What is likely to happen to the money supply? Explain. b) Explain whether such a boom would more likely be inflationary or deflationary. c) Given your answer from (b), would borrowers or lenders more likely benefit?