next year to be 2 percent and the nominal interest rate is percent. Suppose that corporations expect better profit conditions in the future and, so, decide to borrow more $20 million more than before to invest in plants and equipment. At the same time, FDIC increases the amount of deposit insurance from $150,000 to $250,000 (as it did during the 2007-09 financial crisis). This reduces the credit risk for households and, as a result, more households keep their savings in their bank deposit accounts. The increase in the amount of bank deposits enables banks to lend more money to business firms and households. The amount of loanable funds supplied increases by $40 million. Because of these

next year to be 2 percent and the nominal interest rate is percent. Suppose that corporations expect better profit conditions in the future and, so, decide to borrow more $20 million more than before to invest in plants and equipment. At the same time, FDIC increases the amount of deposit insurance from $150,000 to $250,000 (as it did during the 2007-09 financial crisis). This reduces the credit risk for households and, as a result, more households keep their savings in their bank deposit accounts. The increase in the amount of bank deposits enables banks to lend more money to business firms and households. The amount of loanable funds supplied increases by $40 million. Because of these

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will always lower long-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
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Suppose that the current Federal Reserve federal funds rate is 3.0%. If the Fed were to raise it by .25%, it would bring the rate to 3.25%. Explain how the rate increase will impact the market for borrowed funds and the overall economy.
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a) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. The real risk-free rate of return on theseT-bills was: b) When individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties, they are most likely in the phase of the investment life cycle. gifting B. consolidation C. accumulation D. spending c) Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000. The current market price of the bond is $950.25. If the YTM of the bond dropped by 1%, what would happen to the bond price?
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Let's consider the effects of an introduction of the ATM machines (back in the 1980s). Imagine that the cost of going to the bank and exchange money for bonds or bonds for money is y cookies. Imagine also that the nominal interest rate is R, the price level is P and the REAL income that consumers will want to spend is y. Imagine that the entire yearly income is transferred to their bank accounts at the beginning of the year. Consumers consume continuously throughout the year. (a) What is the TOTAL cost of holding M dollars on average over the year? (Note: the total cost is the sum of the opportunity cost and the cost of going to the bank N times a year). (b) What is the relation between the number of trips to the bank, N, and the average money demand, M? (c) What is the optimal money demand? What are the factors that affect money demand? Explain each factor INTUITIVELY. (d) What is the effect of the introduction of the ATM machine on p? (e) What is the effect of the introduction of the…
2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.
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Hello experts, I have posted this question many times in chegg, but every time people answering this question to use ai tool like chatgpt, please dont use gpt and other ai tool. Question: Discuss the role of financial institutions in the economy, focusing on the functions of commercial banks, central banks, and non-banking financial institutions. Explain how these institutions contribute to financial stability and economic growth. Don't use chatgpt or other ai tool. If you know correct answer then attempt if you gave wrong answer then i gave 30 dislikes for you and more from my friends accounts also.