5. Explain how each of the following situations changes the quantity of money (money supply)in theeconomy, 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.)I

(a)If fed buys bonds it is buying it in return for the extra liquidity that it generates in the…

Answered: 5. Explain how each of the following…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Money And The Financial System

Section: Chapter Questions

Problem 1.5P

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8. The reserve requirement, open market operations, and the moneysupply Consider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to 2008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 5 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply (Dollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that,…
8. The reserve requirement, open market operations, and the money supply Consider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to 2008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Money Supply (Dollars) (Percent) Simple Money Multiplier 5 10 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that,…
BUSN5 CH2 WKSMultiple ChoiceIdentify the choice that best completes the statement or answers the question.1. Define economics.a) a financial and social systemb) the study of a countryâ€™s overall economic issuesc) the integration between consumers, families, and businessesd) the study of the choices that different entities make in allocating resources2. Macroeconomics focuses ona) the major issues facing the national economy, but has little or no relevance to individuals.b) smaller economic units such as individual consumers, families, and individual businesses operating within the economy.c) the major issues facing the national economy that may seem abstract, but directly affect an individualâ€™s day-to-day life. d) the role of government, while microeconomics focuses on the private sector.3. After the collapse of the dot com bubble and the 9/11 terrorist attacks, the stock market depreciated and unemployment increased leading many to fear that the…
4. The economy of Baruchville contains 2000 $1 bills. D.) If people hold all money as demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money? E.) If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10%, what is the quantity of money?
6. The reserve requirement, open market operations, and the moneysupply Consider a banking system where the Federal Reserve uses required reserves to control the money supply. (This was the case in the U.S. prior to 2008.) Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Money Supply (Dollars) (Percent) Simple Money Multiplier 15 10 A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that,…
1. 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.
Let's say that you have put $1,000 in your savings account at a local financial institution, and an employee of the banks tells you that the bank does not have the money you deposited in its vault (or anywhere else) in the bank. 1. Could the employee be correct and, if so, then where is the money that you deposited into your savings account? 2. Should you be worried about getting your deposit back from the bank? Why or why not?
1. Open market operations as a monetary tool Suppose that the Federal Reserve buys $6 million worth of government securities from a customer of Wide Bank. In the following balance sheets, show the effect of this transaction. (Hint: If either assets or liabilities do not exist, please select "Not Applicable" and "NA" in the drop-down menus, and type in "0" (zero) in the numeric entry fields.) Assets (Millions of Dollars) Gov't Securities Not Applicable Wide Bank Reserves Cash Reserves Gov't Securities Demand Deposits Federal Reserve's Balance Sheet ssets of Dollars) Gov't Securities Assets (Millions of Dollars) Wide Bank's Balance Sheet Liabilities (Millions of Dollars) Wide Bank Reserves Liabilities (Millions of Dollars) The Customer's Balance Sheet Liabilities (Millions of Dollars)
5. The simple money multiplier Suppose that the Federal Reserve ("the Fed") buys $150,000 of U.S., government bonds and the required reserve ratio is 0.30. If the assumptions of the simple money multiplier hold, this will the money supply by Which of the following assumptions is necessary for the simple money multiplier to be applicable? The amount of cash people want to hold doesn't change when the money supply changes People's marginal propensity to consume does not rise with income. Borrower default rates are stable. If the correct assumption did not hold, the change in the money supply would be describes why this holds true? than you previously found. Which of the following If people kept some of the new money as cash rather than depositing it in another bank, this cash could not in turn become a bank loan. If people's marginal propensity to consume rose with income, they would save less, removing money from the financial system.
1
In the situation depicted above, an increase in the money supply from $100 billion to $150 billion will cause the equilibrium rate of interest to: Group of answer choices a)Decrease from 4 percent to 2 percent. b)Increase from 2 percent to 4 percent. c)Decrease from 6 percent to 2 percent. d)Increase from 4 percent to 6 percent. e)Decrease from 6 percent to 4 percent.
3. First, explain why the money demand curve is downward sloping. Second, explain what factor(s) will cause shifts in the money demand curve.

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