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On the basis of an assessment of the current and evolving
the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0
percent.Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per
cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.
Assess the present liquidity scenario in India and give your opinion about the impact of this
reduction on money supply and also suggest other measures that RBI can take in recent times
to maintain liquidity.
Step by step
Solved in 2 steps
- C= 1,600+0.6(Y-7) - 2,000r P=2,500-1,000r G=2,000 NX= 50 T= 2,000 The Bank of Lotusland, the central bank, has announced that it will set the real interest rate according to the policy reaction function found in the table below. Inflation rate, n Real interest rate, r 0.040 0.045 0.050 0.055 0.060 0.00 0.01 0.02 0.03 0.04 a. For each of the rates of inflation given below, find autonomous expenditure and short-run equilibrium output in Lotusland. Instructions: Enter your responses rounded to whole numbers. Inflation rate, n Real interest rate, r 0.040 0.045 0.050 0.055 0.060 0.00 0.01 0.02 0.03 0.04 Autonomous expenditure Equilibrium output Using the data above, graph the AD curve Instructions: in the graph below, use the line tool AD' to draw the aggregate demand line for levels of inflation 4 percent and 0 percent. Draw only the two endpoints.Consider the following: C = 400 + 0.5·(Y – T) I = 80 + 0.1·Y – 1000·(i – πe + x)NX = 0.01·Y*– 0.1·Y – 4·(E – 100) G = 600 T = 480 Y* = 20,000 The central bank anchored inflation expectations at target inflation rate of π̅= 0.02. Household borrowing rates and businesses include a 4% risk premium over policy rate (i) so: x - 0.04. The central bank has set policy rate equal to 2% (, ī = 0.02). The Exchange rate (E) is 100. Expected future exchange rate is also 100. Then assume the governent cuts tax level from T=480 to T′ = 400: a) Find the short run equilibrium level of output and trade balance? a) If the economy was at potential before, what effects will the tax cut form 480 to 400 have on investments and on trade balance in the medium run?Consider the following: C = 400 + 0.5·(Y – T) I = 80 + 0.1·Y – 1000·(i – πe + x)NX = 0.01·Y*– 0.1·Y – 4·(E – 100) G = 600 T = 480 Y* = 20,000 The central bank anchored inflation expectations at target inflation rate of π̅= 0.02. Household borrowing rates and businesses include a 4% risk premium over policy rate (i) so: x - 0.04. The central bank has set policy rate equal to 2% (, ī = 0.02). The Exchange rate (E) is 100. Expected future exchange rate is also 100. a) Find short-run equilibrium level of output (Y) and trade balance (NX). Is there a trade deficit or surplus? b) Assume the governent cuts tax level to ?′ = 400. What is the new short run equilibrium level of output (?′) and trade balance (NX'). Is this economy suffering from twin deficits (trade and budget). What policy change could help?c) what is the value of the fiscal multiplier fromt he tax cut? if it were a closed economy would it be greater or smaller? d) What effects will the tax cuts have on investments and on the…
- Please answer question 4:Central bank has the following loss function:L=−(yt −ye)+β(πt −πT )2 (13.1) Consult Chapter 13 to answer the following questions: (a) What can we interpret about the central bank’s preferences from this loss function (Equation 13.1)? (b) Briefly explain how this loss function compares to the standard loss function and a loss function with yT > ye. (c) Find the inflation bias for a central bank with this loss function (Equation 13.1). [Hint: see Section 4.6 in Chapter 4].Credit rationing and the financial accelerator are responsible, in part for a) the significant volatility of gross private investment B) the significant volatility of real personal consumption C) smoothing gross private investment during severe recessions. D) smoothing real personal consumption during expansions. During recessions, the value of collateral decreases and corporate profits decrease, so firms do not have cash to finance new investment projects. Therefore, credit rationing depends on state of the economy. This situation is known as the A) risk acceptance cost. B B) lender's dilemma c) default premium D) financial accelerator Pls solve asap
- The monetary policy rate is the rate at which the Central Bank of Ghana lends to commercial banks. The results from table 4.4.1 shows that the monetary rate in Ghana declined from 2019 to 2021, before rising in 2022. The decline in the monetary rate from 2019 to 2021 can be attributed to an expansionary monetary policy, which was implemented to boost the economy of Ghana by reducing unemployment. The rise in the monetary rate in 2022 is a sign of a contractionary monetary policy, which is intended to reduce money supply and increase the cost of borrowing. This can help control inflation but may also lead to lower economic growth due to reduced aggregate demand (consumption). Consumption which is a component of GDP, the decrease in Aggregate demand will lead to decrease GDP and economic growth at large. Digitalization has become the norm in all parts of life, including finance. Mobile money has acquired substantial acceptance in Ghana as a simple mechanism for fund transfers, payments,…Suppose the world real interest rate r ∗ = 3, inflation expectation π e = 2, money supply is 1000, price level is 2. The money demand function is L(i, Y ) = Y − 50i. Suppose the consumption function is: C=200+0.75*(Y-T), I=200-25r, the government spending (G) and tax (T) are both 120, the net export is NX = 100 − 50e. 1. Solve the IS* curve and the LM* curve. 2. Solve Y and e.In the IS/LM model, if the Keynesian expenditure multiplier is 2.76, the investment sensitivity to interest rates is 10, the income elasticity of money demand is 0.2 and the interest rate elasticity of money demand is 3, then the monetary policy multiplier with respect to income is 3.2 -0.12 0.12 -3.2
- Suppose the monetary policy curve is given by r = 1.5 + 0.757, and the IS curve is given by Y = 13 – r. a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is 2%, 3% and 4%. c) Plot the aggregate demand curve and identify the three points from part (Ъ). d) What would be the effect on the aggregate demand curve of an increase in net export? Would an increase in net exports affect the monetary policy curve? Explain why or why not.Increases in policy interest rates by the FOMC are said to be anti-inflationary mainly because: (a) they make investments in interest-rate sensitive investments more attractive; (b) they are associated with rising share values among S&P 500 stocks; (c) they immediately influence the magnitude of the long-term aggregate supply curve; (d) interest rate increases tend to reduce the demand for credit, expansion of money supply growth and aggregate demand.Outline the main concepts of the Liquidity Preference Theory proposed by John Maynard Keynes and discuss its applicability to the Caribbean region.
