Consider a recently foundedDel Griffitheconomy,Park, whose politicians are debct economicpolicies to implement. They arewhether or not to found a central bank andConsideringtheir owndollars for all the rency. Right now,they use Ustransactions and thus aresubject tomonetary policy dicfated by theFederal Reserve. Banks in the economy like tohold reserves,when interest rates are low, anddislike holding reserver when interest rates andhigh, and can borrow and lend withus banks atthe us Federal funds Rate. The government ofDel Griffith pack issues debt to finance it'soperations thatis indexed to the US federal fundsrate.A 2QuestionDraw the supply and demand Curvesmarket for reserves. Be sure to label the axes.inthecorrectly! Then explain why each are has theshape that it does, 1.2., why the demand corve isdownward sloping, e.t.c.

The classical economist considers fiscal policies unnecessary as there are market mechanisms like the flexible adjustments of wages and prices keep the economy at or near the natural level of real GDP at all times. Therefore, classical economists believe that the government of a nation should run a balanced budget for every year.The expansionary fiscal policy i.e. increase in public spending and reduction on taxes are the most important elements, in an anti-depression economy.In the expansionary fiscal policy, the interest rates are lowered in order to increase investments in the economy. Hence, Investments increases.It can be demonstrated as follows:G ↑ → AD ↑ → Y ↑ → Md ↑ → r ↑ → I↓This can be seen with the graph below:Initially, IS=LM and the interest rate is r and output is Q. When there is an expansionary fiscal policy IS shifts to the right to IS1 and if the interest rate is same the output exceeds the equilibrium level as AD>AS. Now, when interest rate rises investment demand falls and AD falls which leads the output level to come to the original level Q. There is an expansionary fiscal policy i.e. reduction in taxes and is done in an anti-depression economy.In the expansionary fiscal policy, the interest rates are lowered in order to increase investments in the economy. Hence, Investments increases. There is an increase in disposable income so the aggregate demand increases.Three reasons that show the Demand curve is downward sloping:1-Pigou's wealth effect. It states that the real value of money depends on the price level and a lower price level or inflation gives a higher purchasing power per unit of money. When the price decreases the consumer becomes wealthier and thus can spend more and increase the aggregate demand.2-Keynes's interest-rate effect – It says that the price level affects the quantity of money, that is, a higher price level means that a relatively large amount of money is used to purchase goods or services. Thus, consumer will demand higher quantities of money when the price level is high. Vice versa happens in the case of low-price level. Thus, consumers will keep larger amounts of money in the bank and as the amount of money in the banks rises, the loan supply increases which in turn will reduce the interest rates. A lower interest rate will increase demand for investments and thus will increase the aggregate demand.3-Mundell-Fleming's exchange-rate effect – If the price level falls, interest rates also fall, and lower domestic interest rates will force domestic investors to invest in foreign countries where they can earn a higher rate of return. This will lead to falling in the exchange rate as the domestic currency is flowing out of the economy and foreign currencies are flowing into the economy. Now domestic goods become cheaper for foreign countries. Hence, net exports rise and thus leading to an increase in aggregate demand.

Business

Economics

Consider a recently founded economy, Parls, whose politicians are debating policies to implement. They are first considering whether or not to found a central bank and Issue their own currency. dollars for all their transactions and thus are Right now, they use Us subject to monetary policy dicfated by the Federal Reserve. Banks in the economy like to hold reserves. when interest rates are low, and Del Griffith economic us banks at dislike holding reserver when interest rates are high, and can borrow and lend with the us Federal funds Rate. The government & Del Griffith Pack issues debt to finance its operations that is indexed to the us federal funds rate. A 2 Question Draw the supply and demand Curves market for reserves. Be sure to label the axes. in the correctly! Then explain why each are has the shape that it does, 1.e., why the demand corve is downward sloping, e.t.c..

Consider a recently founded economy, Parls, whose politicians are debating policies to implement. They are first considering whether or not to found a central bank and Issue their own currency. dollars for all their transactions and thus are Right now, they use Us subject to monetary policy dicfated by the Federal Reserve. Banks in the economy like to hold reserves. when interest rates are low, and Del Griffith economic us banks at dislike holding reserver when interest rates are high, and can borrow and lend with the us Federal funds Rate. The government & Del Griffith Pack issues debt to finance its operations that is indexed to the us federal funds rate. A 2 Question Draw the supply and demand Curves market for reserves. Be sure to label the axes. in the correctly! Then explain why each are has the shape that it does, 1.e., why the demand corve is downward sloping, e.t.c..

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

2. On February 1st, the Federal Reserve announced it would raise interest rates by 25 bps. On February 2nd, the European Central Bank announced that it would raise interest rates by 50 basis points. Puzzlingly, the Euro then proceeded to depreciate relative to the dollar on February 2nd and 3rd despite this growing interest rate differential between Europe and the US. a. Compare what changed between the December 2022 and February 2023 European Central Bank Monetary Policy Decisions and statement in the first two paragraphs in such statement. Note that you can do this manually by reading the statements and comparing them. You may also use a word processor to automatically highlight any changes between the versions of the documents. b. Also, compare what changed between the December 2022 and February 2023 Federal Reserve FOMC statements. c. From your analysis what were the unexpected shocks or surprises to the interest rate differential contained in the February statements?
True-False with explanationA monetary expansion only changes inflation on the long run
Suppose that Germany (country a) and France (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Germany and 1,000 goods in France. The fiat money supplies are 100 marks in Germany and 300 francs in France. A. Find the value of each country's money if the exchange rate et is 3. Do the same if et =1. Is one exchange rate more likely than the other? Explain. B. Suppose the exchange rate is 3 and France triples its fiat money stock, whereas Germany prints no new money. How many goods will France gain in seigniorge? What fraction of this seigniorge comes from German citizens?
4. What are the various setbacks in achieving monetary union in GCC countries? Explain any 4 reasons.
In August 2015 investor sentiment shifted against the Chinese yuan. Investors sold the yuan and bought dollars, as financial capital flowed out of China, seeking better rates of return in other countries. What actions did China take in response to this situation? O China used $1 trillion of its foreign exchange reserves to purchase the yuan in an attempt to prevent further devaluation and tightened capital controls on financial outflows. O China loosened capital controls to encourage forcign investment into the Chinese economy. O China sold the yuan to encourage further depreciation in an attempt to improve its trade deficit. China's monetary authority sold tie yuan in an attempt to orevent fürther devaluation and raised interest rates to stem the outflow of forcige capital.
Adopting the Gold Standard for a country’s economy implies that a. Money supply can be easily increased or decreased b. Interest rates become flexible c. Utilizing monetary policy tools becomes constrained d. Fiscal policy becomes flexible
QUESTION 3 How are purchases or sales of foreign currency by a central bank are related to monetary policy? OA. a purchase of foreign currency will increase money supply B. a purchase of foreign currency will reduce the nominal exchange rate C. a purchase of foreign currency will reduce money supply O D. a purchase of foreign currency will increase the nominal exchange rate
Present a chart (s) showing currency in circulation, M1 and M2. What factors account for the recent trends? Insert the suitable trend lines. (Hint: you must discuss topics such as quantitative easing and the fiscal stimulus) Show with the British Pound
Explain two monetary policies that could be implemented by the central bank which would have the same impact as the interest rates policy implemented by Trindad and Tobago due to COVID-19
The higher are interest rates, the: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a MNY.21 Homework Unanswered Due Mar 17th, 11:59 PM b C higher the opportunity cost of holding currency. lower the opportunity cost of holding currency. the more expensive it is to buy bonds. the higher the demand for money.
Following political tensions, Germany's marginal propensity to import from Russia is likely to decrease and its IS curve is likely to shift down. The govermment attempts to avoid an economic downturn Using monetary policy can help with everything except 10 Select one answer O Restoring the previous level of output O Restoring the slope of the IS curve. O Reaching a new and higher level of output O Restoring the previous level of interest rate
Provide brief answers to the questions below. 1. Explain why the Purchasing Power Parity theory fails to explain the exchange rate movements in the short run. 2. Describe the working of the bank lending channel of monetary policy transmission. 3. Describe the flaws of the so-called Modern Monetary Theory. 4. Should central banks respond to asset price bubbles?