der the bigare to the right. Suppose that instructions in the latest FOMC Drective call for a monetary policy action at inducing individuals and businesses to demand a larger quantity of money Use the figure to assist in ning whether officials at the Federal Reserve Bank of New York's Trading Desk should buy or sell bonds ing the line drawing tool, draw either a new demand curve (D₂) or a new supply curve (5₂) that shows how the ng Desk's buying or selling of existing bonds could induce individuals and businesses to demand a larger quantity ney Property label your line ming the point drawing tool, indicate the new equibrum price and quantity Label this point E₂ mully follow the instructions above, and only draw the required objects the market price of existing bonds and the rate of interest are the price of bonds s by the Fed lity of money demanded related, an open market the interest rate prevailing in the economy, and increases the www.dow Q C

der the bigare to the right. Suppose that instructions in the latest FOMC Drective call for a monetary policy action at inducing individuals and businesses to demand a larger quantity of money Use the figure to assist in ning whether officials at the Federal Reserve Bank of New York's Trading Desk should buy or sell bonds ing the line drawing tool, draw either a new demand curve (D₂) or a new supply curve (5₂) that shows how the ng Desk's buying or selling of existing bonds could induce individuals and businesses to demand a larger quantity ney Property label your line ming the point drawing tool, indicate the new equibrum price and quantity Label this point E₂ mully follow the instructions above, and only draw the required objects the market price of existing bonds and the rate of interest are the price of bonds s by the Fed lity of money demanded related, an open market the interest rate prevailing in the economy, and increases the www.dow Q C

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the Federal Reserve conducts an open market sale. This is considered monetary policy. In response, the size of the monetary base and the size of the money supply O contractionary; grows; grows by more expansionary: grows; grows by more contractionary; shrinks; shrinks by less O contractionary; shrinks; shrinks by more O expansionary; grows; grows by less
When the Federal Reserve conducts open market operations, it O buys or sells government bonds. increases or decreases the required reserve ratio. O buys and sells foreign currency manipulates of the rate at which it loans to member banks. How will the Fed's policy action change the money supply? Use only the actions corresponding to your choice in the previous part The money sup ply increases The money sup ply decreases Answer Bank The Fed bu vs bonds The Fed sells bonds The Fed buys foreign currency The Fed sells foreign currency The Fed increases the reserve ratio The Fed decreases the reserve ratio The Fed increases the rate at which it lends to member banks The Fed decreases the rate at which it lends to member banks
A purchase of U.S. government securities by the Fed causes A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased. B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system. C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system. D. a multiple expansion of the money supply because the required reserve ratio is less than one
Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
estimated that banks would be wi g w. $1 25 per transaction, while noncustomers would attempt to conduct 19 mimon uans- $1.25 actions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute trav- eling to another machine to withdraw cash. Based on this information, use a graph to carefully illustrate the impact of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions. (LO3, LO4) 19. Rapel Valley in Chile is renowned for its ability to produce high-quality wine at a frac- tion of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States. Each bottle entering the United States is subjected to a $0.50 per bottle excise tax, which generates about $2.5 million in tax revenues. Strong La Niña weather patterns have caused unušually…
Classify each of the following as either a policy instru- ment or an intermediary target. Explain your answer. a. Long-term interest ratesb. Central bank interest rates c. M2d. Reserve requirements
Table 10-2 Last Bank of Cedar Bend Assets: Reserves Loans Liabilities: $25 000 Deposits $180 000 S155 000 efer to the Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50 000 into the bank, what is the bank's reserve osition? alect one: cross a. It will have $52 000 in excess reserves. cros b. It will need to raise reserves by $5000. cros c. It will have $57 000 in excess reserves. d. It will have excess reserves of $2000.
Consider the following table: Interest rate % Asset demand for Money supply $460 460 220 460 220 460 220 460 The transactions demand for money in this money market would graph as a: 2 4 6 8 Transaction demand for money 10 vertical line $220 220 horizontal line money $300 280 260 240 220 Oline sloping downward and to the right single point line sloping upward and to the right
Which of the following represents an action by the central bank designed to decrease the money supply? Select one: a. a decrease in the required reserve ratio O b. buying government securities an increase in the discount rate C. d. a increase in tax rates
Which of the following policies would the Federal Reserve most likely use if the economy was suffering from high inflation? O Decrease the required reserve rate O Buy bonds in the open market O Decrease the interest rate the Fed pays on bank reserves O Raise the discount rate
What kind of monetary policy should the Fed use if the economy is currently in the northwest area of the bullseye chart? O Expansionary. ONeither expansionary nor restrictive O Restrictive O Expansionary and restrictive
What is the role of the Fed and the FOMC in the U.S. economy? A. The Fed is the world's central bank, and the FOMC is composed of the Fed chairman and the President of the United States. B. The Fed provides banking services to banks and governments, and the FOMC meets every six weeks to review the state of the economy. C. The Fed implements policy dictated by the White House, and the FOMC is its management committee. D. The Fed is the central bank of the United States, and the FOMC is a committee of the New York Fed.