3. What are the effects of the following events on the monetary base? i. The Treasury writes checks to Social Security recipients for $800 million. Monetary base would increase ii. The Federal Reserve buys a new fleet of cars for $5 million. No impact because it is a consumption of goods iii. The Federal Reserve sells $5 billion of Treasury bills in the open market. Money supply would decrease by $5 billion iv. The Federal Reserve sells $700 million of its German bonds for euros.

3. What are the effects of the following events on the monetary base? i. The Treasury writes checks to Social Security recipients for $800 million. Monetary base would increase ii. The Federal Reserve buys a new fleet of cars for $5 million. No impact because it is a consumption of goods iii. The Federal Reserve sells $5 billion of Treasury bills in the open market. Money supply would decrease by $5 billion iv. The Federal Reserve sells $700 million of its German bonds for euros.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Experimental exercise Argue on the following premises: If the income of the economy increases and the Central Bank does not want to increase the money supply, interest rates must be lowered. Graph. If the money supply increases, the interest rate must rise to balance the money market. Graph. If the money supply were increasing with the interest rate, what would the graph of said curve look like? (Draw it)
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3. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 4.5 4.0 6 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 Money Demand + 0.1 Money Supply 0.3 0.5 0.6 MONEY (Trillions of dollars) 0.2 0.7 0.8 New MS Curve New Equilibrium ? Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing…
Draw a graph with the quantity of money on the horizontal axis and the interest rate on the vertical axis. Initially, the money supply curve is vertical because its determined by the Fed. The demand for money curve slopes downward, indicating the negative relationship between the interest rate and the quantity of money demanded.
9. Read the headline below: CONTINUED RISE IN UNEMPLOYMENT RATE LEADS FEDERAL RESERVE TO INCREASE MONEY SUPPLY Which of these best explains the reason for the Federal Reserve's action? A. to encourage consumers to stop spending money they do not have B. to make it easier for businesses to borrow money for expansion C. to give businesses incentives to decrease their production of goods GO D. to provide more funds for the government-run entitlement programs
Expansionary monetary policy is when: None of the statements are correct. The president and congress agree to lower interest rates. The president orders the Federal Reserve to cut income taxes. The Federal Reserve reduces the regulations hindering our business community. The Federal Reserve increases the nation's money and credit supply and raises interest rates. A Moving to the next question prevents changes to this answer. JUL 21 tv 11 A O COMMUNITY
QUESTION 5 Which of the following statements is correct? A. monetary policy was contractionary during the Great Recession and contractionary during the COVID Recession B. monetary policy was expansionary during the Great Recession and expansionary during the COVID Recession C. monetary policy was contractionary during the Great Recession and expansionary during the COVID Recession D. monetary policy was expansionary during the Great Recession and contractionary during the COVID Recession
3. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 45 40 35 30 2.5 20 1.5 1.0 0.5 0 Money Demand 0.1 Money Supply 02 03 04 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 New MS Curve New Equilibrium Suppose the Fed announces that it is raising its target interest rate by 50 basis points, or 0.5 percentage points. To do this, the Fed will use open- market operations to money by the the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money…
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.
Suppose the reserve requirement for the United States is 8%. Instructions: Round your answers to the nearest whole number. a. Suppose the Federal Reserve wants to increase the money supply. What should it do to accomplish this goal? The Fed could make an [(Click to select) of $50 billion, resulting in a total increase in the money supply of $[ b. Now suppose the Fed wants to decrease the money supply. What should it do to accomplish this goal? The Fed could make an (Click to select) of $40 billion, resulting in a total decrease in the money supply of $ billion. billion.
30. . If the Fed reduces the money supply to reduce inflation: the interest rate will increase, and the price of US exports will fall and the price of US imports will rise. the interest rate will increase, and the price of US exports will rise and the price of US imports will fall. the interest rate will increase, and the price of both US exports and US imports will rise. 4. the interest rate will increase, and the price of both US exports and US imports will fall.
9. According to the quantity theory of money, the Fed could combat inflation by: Multiple Choice decreasing the supply of money. increasing taxes. increasing the supply of money. reducing taxes. 10. The real interest rate is: Multiple Choice adjusted for inflation. the amount of interest the bank pays you for saving or charges you for borrowing. the federal funds rate. the actual average interest rate in the economy. 11. Suppose the annual nominal interest rate is 10 percent and the inflation rate is 6 percent. If you deposit $1,000, at the end of the year: Multiple Choice your purchasing power will have increased. your savings will have nominal increased by $100. you will have earned a real rate of return of 4 percent. All of these statements are true.