In March 2022, the Bank of Canada was concerned that the Canadian economy would continue to experience high inflationary pressures as a result of geopolitical uncertainty To prevent this, the Bank of Canada: a) increased government purchases of goods and services. O b) raised the overnight interest rate target ) decreased the money supply d) decreased government purchases of goods and services e) reduced the overnioht interest rate target
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- Price stability: Suppose you are the head of the central bank and your mandateis to maintain the price level at a constant value. Explain what you would doto the money supply in response to each of the following events:(a) Real GDP increases by 4% during a boom.(b) Real GDP declines by 1% during a recession.(c) Real GDP is growing at 3% per year.(d) Te velocity of money increases by 2%.(e) Te velocity of money declines by 1%.Recently the economic conditions of the country have been weakened. Even though inflation has not increasedin the last year. Price of crude oil on the international market has increased by 15% last month. As a measurein controlling inflation in the country, the Monetary Policy Committee (MPC) of the Bank of Ghana has decidedto restrict the supply of money and increase the target policy rate by 100 basis points (1%):a. As a finance student, do you support the decision made by the monetary committee? Explain b. Explain how prices of debt securities would change in response to this policy? c. Assume the Monetary Policy Committee decides to reduce the target policy rate by 1.5% today and thisdecision is not backed by any financial market expectations. Will this change in policy directive affectyields paid by firms when they issue corporate bonds? d. In the last month, the 91day treasury bill rate (risk free rate of return) has increased from 10% to 15%per annum. What are the potential…Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019.Classic BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 1,000 Deposits 3,000Securities 2,000 Equity 7,000Loans & Advances 1,000Property, Plant and Equipment 6,000 .10,000 10,000 Prudent BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 600 Deposits 2,500Securities 1,500 Equity 4,400Loans & Advances 800Property, Plant and Equipment 4,000 .6,900 6,900Assume a required reserve ratio of 10%.(a) What is the amount of excess reserves in this commercial banking system? (b)What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded? (c) Determine the stock of broad money supply assuming the non-bank public holds…
- The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by implementing an expansionary monetary policy, causing the M2 money supply to rise from$15.3trillion in December 2019 to$18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should the inflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the Fed’s monetary expansion?D) what kind of monetary policy might be helpful to stabilize the economy ( expansionary or contractionary)? E) what specific monetary policy tools does the federal reserve have available to use in this scenario? F) explain in detal, how should the federal reserve use each ofthese tools to maximize their effect in stabilizing the economy, what will be the likely effect of each monetary tool's use on the money supply , and the resulting impact on the economyHow can a central bank decrease the money supply? O a. By selling securities O b. All of the answers are correct O c. By decreasing the target overnight interest rate O d. By engaging in "quantitative easing"
- 1. Supposeyouhave$200,000inabanktermaccount.Youearn5%interestper annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses.2. TheAustralianBureauofStatistics(ABS)reportedinMay2017thatthecivilian population in Australia over 15 years of age was 20.8 million.Of this population of 20.8 million Australians, 13.5 million were employed and 0.7 million were unemployed.Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force? Also, with examples examine the causes of structural unemployment in Australia.14. If the expected inflation rate is 5% and negotiators agree that the real wages should rise by 7%, the two sideswill agree to an increase in the money wage ofA 2%B 5 %C 7 %D 12%4. The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by imple-menting an expansionary monetary policy, causing M2 money supply to rise from $15.33 trillion in December 2019 to $18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should theinflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the monetary ex-pansion?
- r the next chair of the Federal Reserve Board has a reputation for advocating an even slower rate of money growth than the current chair, what will happen to interent raten? OA. Slower money growth will lead to a liquidity effect, which will raise interest ratos. Moreover, the lower income, price level, and inflation wil reinforce the increane in interest rates OB. Slower money growth will lead to a liquidity effect, which will raise interest rates; however, the lower income, price level, and inflation wil tend to lower interest rates. OC. Slower money growth will lead to a liquidity effect, which will lower interest rates; however, the lower income, price level, and inflation wil tend to raise interest rates. O D. Slower money growth will lead to a liquidity effect, which will lower interest rates. Moreover, the lower income, price level, and inflation will reintoron he decrease in interest rates.Money demand curve is downward sloping because as interest rate rises, businesses find it less attractive to borrow for the sake of investment. as interest rate rises, liquidity provided by holding money looses itsattractiveness for households, compared to other financial instruments as means of saving. as interest rate rises, it becomes less attractive for households to hold other financial instruments as means of saving as interest rate rises, households will need less money for their daily transactions.When the Federal Reserve sells Treasury bonds to the public, this will cause reserves in the banking system to and the money supply is likely to O decrease : decrease O increase : decrease O decrease : increase O increase : increase « Previous Next ASUS 15 R