III. True/False - Explain: 1) According to Walras Law excess demand in the money market would also be associated with an excess demand for bonds. 2) When the Fed lowers the discount rate the money supply might or might not increase. 3) The money multiplier has changed dramatically in the last few years because of significant changes in s. 4) The federal funds rate is an interest rate that the Fed directly controls. 5) An expansionary monetary shock leads to a net decrease in investment because of monetary feedback. 6) Fiscal crowd-out can be avoided by decreasing M when expansionary fiscal shocks are implemented. 7) Banks with excess reserves can potentially create DDs in excess of their level of excess reserves. 8) The money supply in the United States has increased dramatically in the last few years because the money multiplier has significantly increased. 9) Fiscal policy is more effective when money demand is very responsive to interest rate changes.

III. True/False - Explain: 1) According to Walras Law excess demand in the money market would also be associated with an excess demand for bonds. 2) When the Fed lowers the discount rate the money supply might or might not increase. 3) The money multiplier has changed dramatically in the last few years because of significant changes in s. 4) The federal funds rate is an interest rate that the Fed directly controls. 5) An expansionary monetary shock leads to a net decrease in investment because of monetary feedback. 6) Fiscal crowd-out can be avoided by decreasing M when expansionary fiscal shocks are implemented. 7) Banks with excess reserves can potentially create DDs in excess of their level of excess reserves. 8) The money supply in the United States has increased dramatically in the last few years because the money multiplier has significantly increased. 9) Fiscal policy is more effective when money demand is very responsive to interest rate changes.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. Assume that the reserve requirement is 20%. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Fed decides that it wants to expand the money supply by $40 million. A.) If the Fed is using open-market operations, will it buy or sell bonds? B.) What quantity of bonds does the Fed need to buy or sell to accomplish the goal? Explain your reasoning.
1. Which do you think would be more harmful to the economy—an inflation rate that averages 5 percent a year that has a high standard deviation or an inflation rate of 7 percent that has a standard deviation close to zero? 2. Suppose a major bank needs to borrow $20 billion overnight that it cannot obtain from private creditors. The Fed is willing to make a discount loan of $20 billion provided that it will not alter the aggregate supply of reserves to the banking system. How can it do so?
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Question 2 If reserves increase, banks have the ability to make more loans, which as we have seen would increase the money supply. Suppose the Fed uses open market operations to add $1 million in reserves to the banking system, and all banks keep a ratio of reserves to deposits of 20%. Then according to the money multiplier formula, by how much will the money supply ultimately increase? (Answer in millions, to the nearest .1 million if your answer is not an integer.) Your Answer: Answer D View hint for Question 2 Question 3 (. Chapter 11 mentions that in the past the Fed did not pay interest on accounts that banks kept with it, but that since 2008 it has paid interest on these accounts. Does the Fed paying interest have any effect on the ratio of reserves to deposits that banks choose to hold? Does it increase the reserve ratio, decrease it, or have no effect on it? Explain briefly. (Graded for participation only.)
Question 2 is attatched. Asking for an answer for question 4
46) In 2008, Japan's economy suffered as world economies slowed. If authorities in Japan followed the monetarist viewpoint, to bring the economy back to full employment.A) taxes would be decreased and the money supply should be increasedB) nothing should be doneC) aggregate supply would shift leftwardD) the money supply would be kept growing at a steady pace
Multiple choices 1. Banks face liquidity risk because A) they can have difficulty meeting their depositor's demands to withdraw money. B) they are unable to borrow from the Federal Reserve. C) households and businesses may seek to borrow a large amount of funds in a short period of time. D) governments tend to run high budget deficits. 2. The original intention of the Fed's role as lender of last resort was to make loans to banks that were A) not illiquid nor insolvent. B) illiquid, but not insolvent. C) insolvent, but not illiquid. D) both illiquid and insolvent. 3. Why might a nation seek to maintain a pegged exchange rate? A) It makes business planning easier for firms involved in the global economy. B) It removes the need to intervene in the foreign exchange market. C) It ensures that the exchange rate will remain at its equilibrium. D) It makes their currency more attractive on the foreign exchange market. 4. Suppose a country pegs its currency. If investors start to believe the…
11) Which of the following increases the quantity of money? A) an individual's cash withdrawal from a bank B) an individual's purchase of a government security from the Fed C) the Fed's purchase of a government security D) an increase in the government's budget deficit 12) Open market purchases by the Federal Reserve System (the Fed) A) raise the federal funds rate. B) increase bank reserves. C) occur when the Fed wants to decrease the quantity of money. D) All of the above answers are correct. 13) When the Fed raises the federal funds rate, A) net exports increase. B) the value of the dollar falls on the foreign exchange market. C) the value of the dollar rises on the foreign exchange market. D) consumption increases. 14) If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________. A) increase; increase B) increase; decrease C) decrease; increase D)…
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The reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்
1) when the fed realises that inflation is going up at an unstable rate for the economy , which of the following are they most likely do ? (a) print more money (b) increase the discount rate (c) lover the reserve ratio
7. For each of the following statements, indicate whether it is correct by checking the appropriate box:a) A decrease in the legal cash flow coefficient (θ) allows commercial banks to grant more loans on the basis of the same amount of deposits, leading to an increase in the value of the money multiplier and therefore in the money supply in circulation in the economy;b) When the Central Bank conducts an open market operation, consisting of the purchase of Treasury bills, the money supply in circulation in the economy increases, all other things being equal;c) If the fraction of the money supply held in the form of fiat money is 25%, and if the legal tender coefficient (θ) is 20%, then the money multiplier is 2.5;(d) If the fraction of the money supply held in the form of currency is 20% and the legal cash flow coefficient is 25%, then the money multiplier is 2.5 ;e) None of the above statements is correct.