Suppose that the monetary policymaker to control the inflation level in the country decreased the level of money supply in the country. How that change will generate impacts on the money market, bond market and foreign exchange market in the short and in the long run? (Use graphs) (10 points)

Suppose that the monetary policymaker to control the inflation level in the country decreased the level of money supply in the country. How that change will generate impacts on the money market, bond market and foreign exchange market in the short and in the long run? (Use graphs) (10 points)

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 4PA

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

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2) Suppose that the monetary policymaker to control the inflation level in the
country decreased the level of money supply in the country. How that change
will generate impacts on the money market, bond market and foreign exchange market in the short and in the long run? (Use graphs) (10 points)

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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