Expansionary monetary policy involves ______ interest rates, which shifts the aggregate demand curve ______, causing output to ______.a) lowering; left; fallb) lowering; right; risec) raising; right; rised) raising; left; fall
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Expansionary monetary policy involves ______ interest rates, which shifts the aggregate demand curve ______, causing output to ______.
a) lowering; left; fall
b) lowering; right; rise
c) raising; right; rise
d) raising; left; fall
Step by step
Solved in 2 steps
- A central bank carries out a contractionary open market operation.(a) What precisely does the central bank do in such an event?The central bank of Barbados decides to pursue anexpansionary monetary policy. (i) Identify one possible action they could take. (ii) Carefully explain, in as much detail as possible, how the chosen action will impact the money market. (iii) Illustrate the overall impact of the chosen action on the money market.2) When would the Federal Reserve want to carry out a monetary policy to decrease aggregate demand?
- Q3) How do expansionary actions by the Federal Reserve increase the money supply? ( Max 100 words) Q4) How do contractionary actions by the Federal Reserve decrease the money supply? ( Max 100 words) Q5) Can monetary policy fix economic shocks? ( Max 200 words)Which of the following best describes the cause-effect chain of an expansionary monetary policy? A) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. B) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.(a) The Federal Reserve Bank of the United States (i.e., the Fed) is responsible for financing the operations of the federal government. True or false? Explain. (b) Changes in reserve requirements are an effective monetary policy tool that the Fed uses frequently to control the money supply. True or false? Explain.
- Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.Which one of the following statements regarding the demand for money is correct? (a) A positive relationship exists between the quantity of money demanded and the prevailing interest rate in an economy; (b) The demand for money is made up of the sum of all the money balances that participants in the economy would like to have; (c) For a given interest rate, an increase in nominal income increases the demand for money; (d) Two key factors that impact on the demand for money by individuals are savings and investments available to participants.Q13
- When the Fed buys bonds (or bond options) on a larger scale (than before) from private banks, ceteris paribus Group of answer choices A) the money supply tends not to change. B) it tends to cause deflation. C) the money supply tends to decrease. D) aggregate demand tends to shift left. E) the money supply tends to increase.True or False 1) 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.Applied Problems on Monetary Policy and Interest Rates 1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate).
