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- What is the expected impact of a decline in the money supply to the US economy? A. Higher aggregate prices (inflation) B. Lower aggregate prices (deflation) C. There is no general relationship between the money supply and inflatonWhat is the likely effect on inflation when a central bank increases the money supply rapidly? A. Inflation will decrease. B. Inflation will remain stable. C. Inflation will increase. D. Inflation will first decrease, then increase.(c) Monetory policy authorities will respond to the change in price level that occurred in part (b). How might the central bank respond to the change you described in part (b)? (d) Draw a correctly labeled graph of the money market. a. Label the equilibrium interest rate. b. Show on your graph the change in money supply that will occur due to the monetary policy described in part (c). c. Show on your graph the change in interest rates that will occur due to the monetary policy described in part (c). (e) At the same time, assume that policymakers at the Bank of England enforce an expansionary monetary policy.
- What is the main argument for having a Central Bank independent from the government for the purposes of monetary policy? Select one: a. An independent Central Bank would have more resources available to devote towards implementing monetary policy b. An independent Central Bank would be more knowledgeable about the state of the economy. Consequently, the Central Bank would be better suited to implementing monetary policy c. The Central Bank is more credible in its inflation and cash rate targets. Consequently, inflation expectations will adjust appropriately to monetary policy announcements d. Having an independent Central Bank prevents any economic trade-offs when making monetary policy choicesAccording to the quantity theory of money, (a) Increases in the money supply will lead to inflation, ceteris paribus (b) The level of inflation is independent of the money supply (c) The money supply times the velocity equals the real GDP (d) When real GDP rises, the money supply must fall by the same proportion (e) The velocity of money is assumed to fluctuate widely over timeSuppose the economy has just entered a downturn due to a decrease in investment spending. While of the following actions could a central bank take to successfully counteract the downturn? a) Increase capital investment spending on the part of government agencies. b) Issue treasury bills in order to lower the interest rate. c) Buy back treasury bills in order to lower the interest rate. d) Buy back treasury bills in order to raise the interest rate. e) Lower the tax rate on real estate and capital gains assets
- Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…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.If the Bank of Canada wanted to reduce inflation, it could Select one: a. increase the reserve requirement or implement an open market sale. b. increase the reserve requirement or implement an open market purchase. c. decrease the reserve requirement or implement an open market purchase. d. decrease the reserve requirement or implement an open market sale.
- policy is when a central bank acts to increase the money supply in an effort to stimulate the economy. Select one: a.Deflationary monetary b.Expansionary monetary c.Contractionary fiscal d.Cyclical monetary e.Countercyclical fiscalThe central bank in Jamica decides to pursue anexpansionary monetary policy.(i) Identify one possible action they could take.(ii) 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.If the central bank purchases government securities from the private money market other things being equal, what would the effect be on the following? a. The economy's monetary base b. Short-term money market interest rates c. Aggregate demand, economic activity and inflation