QUESTION 43 Which of the following statements best describes quantitative easing? O a. the central bank sells large quantities of government bonds to financial institutions to increase liquidity. O b. financial institutions purchase government bonds from the central bank and restrict lending. O c. financial institutions sell government bonds to the central bank and increase lending. O d. the central banks purchase government bonds and financial institutions purchase more government bonds to restore liquidity.

QUESTION 43 Which of the following statements best describes quantitative easing? O a. the central bank sells large quantities of government bonds to financial institutions to increase liquidity. O b. financial institutions purchase government bonds from the central bank and restrict lending. O c. financial institutions sell government bonds to the central bank and increase lending. O d. the central banks purchase government bonds and financial institutions purchase more government bonds to restore liquidity.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Below, discuss the implications of the Federal Reserve’s Policy Statement on Tuesday that they will continue to spend $120 Billion per month on bond purchases. First, why do you think they are doing this in regard to interest rates. Second, what is the impact on the supply of money in the economy. 1.) Implications of the Federal reserve Policy statement to continue to spend 120 Billion per month on Bond purchases. Explain 2.) Why do you think they are doing this regarding interest rates? 3.) What is the impact on the supply of money in the economy?
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1. Which model can explain the Fisher effect on interest rates? A. the supply and demand model for bonds B. both our supply and demand model for bonds and Keynes’ liquidity preference model C. neither the supply and demand model for bonds nor the Keynes’ liquidity preference model D. Keynes’ liquidity preference model
Figure 2 P. LRAS SRAS AD Y. Y. Refer to Figure 2. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should O a. purchase government bonds, which will reduce the money supply and shift the AD curve left. Ob sell government bonds, which will inerease the money supply and shift the AD curve right. purchase government bonds, which will inerease the moncy supply and shift the AD curve right. O d. sell government bonds, which will reduce the money supply and shift the AD curve left. P.
Question Now we introduce banks that will act as liquidity providers in the economy. Suppose that banks are able to issue private IOU's, such that individuals deposit goods with the bank and the bank can promise a return on the deposit. We start by assuming that there is no reserve requirement or lending by the Central Bank. (a) Suppose a young individual wants to use one consumption good to acquire money. What return does the bank need to promise the individual to have them deposit the good with the bank instead? (b) Suppose that when the individual deposits a good with the bank, the bank uses this good to create capital. Further, suppose that when the bank offers a return on deposits that is equal to the real rate of return on money then the individual will choose to deposit with the bank instead of acquiring money. A young individual in period t deposits one good with the bank when young. Suppose no young individuals in period t+1 make deposits. How does the bank pay the young…