The Federal Reserve System was established to provide a stable monetary system for the entire economy. The Federal Reserve Bank (the Fed) has three major tools to control the money supply: 1) reserve requirements, 2) discount window for loans to member banks, and 3) open market operations. When the economy is in a recessionary mode, what will likely be the actions by the Federal Reserve using monetary policy? Suppose the Federal Reserve purchases a $100,000 bond from John Doe, who deposits the proceeds in the Manufacturer's National Bank; what will be the impact of this transaction on the supply of money? How do each of the Fed's tools work?

The Federal Reserve System was established to provide a stable monetary system for the entire economy. The Federal Reserve Bank (the Fed) has three major tools to control the money supply: 1) reserve requirements, 2) discount window for loans to member banks, and 3) open market operations. When the economy is in a recessionary mode, what will likely be the actions by the Federal Reserve using monetary policy? Suppose the Federal Reserve purchases a $100,000 bond from John Doe, who deposits the proceeds in the Manufacturer's National Bank; what will be the impact of this transaction on the supply of money? How do each of the Fed's tools work?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy action ________(Decreases, Increases) demand for goods and services in the economy, leading to ________(Higher, Lower) prices for products. In the short run, the change in prices induces firms to produce ________(Fewer, morer) goods and services. This, in turn, leads to a ___________(Higher, Lower) unemployment level. Based on this analysis, the economy faces the following trade-off between inflation and unemployment: Higher inflation leads to _________(Higher, Lower) unemployment.
Introduction to Macroeconomics Required Reserves and the Money Multiplier When a bank receives a deposit, it must set aside part of it according to the established reserve requirement. The remaining funds are excess reserves and can be lent out, In our economy of multiple banks, it is very likely that the proceeds of the loan will end up on deposit at another bank. When that happens, the process repeats itself: The bank sets aside required reserves and can lend out its excess reserves. The result is the money multiplier process. Use the table that follows to learn more about this process. The table begins with an initial deposit of $1,000 to one bank and assumes a required reserve ratio of 15%. Assume the amount lent by one bank is always deposited in another. 1. Calculate the amount of required reserves, excess reserves, and lending at each step in the process. The first boxes of the table are filled in to get you started. Continue until you have filled in five rows of numbers. 2. Now…
"If a central bank's desired intermediate target is a monetary aggregate (money supply), then its policy instrument will most likely be a reserve aggregate variable like the monetary base." Explain this based on the conduct of monetary policy in practice.
Suppose the Federal Reserve ("the Fed") shifts to an expansionary monetary policy by buying bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's expansionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to . Money DemandMoney Supply03006009001200150018006543210INTEREST RATE (Percent)QUANTITY OF MONEY (Billions of dollars)Money Demand Money Supply 900, 3 The following graph shows the demand for investment. Show the short-run effect of the Fed's expansionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph.…
Which of the following best describes the cause-effect chain of an expansionary monetary policy? A) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. B) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
Consider the following data for the United States: On October 01, 2020, M1 was $17,609 billion, the price level was 1.144, and real GDP was $18,794 billion in base-year dollars. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Using the information provided above, the income velocity of money was (Enter your response rounded to two decimal places.)
In the monetary intertemporal model, assume that money supply is always fixed. Suppose that there is an increase in real wage. How does this change affect interest rates (both real and nominal), price level, employment, total factor productivity and equilibrium output? Carefully explain your answers. b) Suppose that, in a liquidity trap, bank reserves are less liquid than government debt. If the Central Bank conducts an open market purchase of government debt, what is the effect on price level? Use an appropriate set of diagram to explain your answer.
10. According to the European Central Bank website, the treaty establishing the European Community "makes clear that ensuring price stability is the most important contribution that monetary policy can make to achieve a favourable economic environment and a high level of employment." If price stability is the only goal of monetary policy, explain how monetary policy would be conducted during recessions. Analyze both the case of a recession that is the result of a demand shock and the case of a recession that is the result of a supply shock.
Targeting the federal funds rate ( is, is not ) as important a tool today as it was before the 2007-2009 financial crisis. During the financial crisis when the federal funds rate was near zero, the Fed ( did, did not ) wish to go lower than zero and came up with alternatives to influence interest rates and lending: the administered rates. Today, the Fed still sets a target for the federal funds rate but finds it more effective to change the administered rates. By doing that, the Fed can stimulate or restrict lending. The federal funds rate is the Feds policy rate and (is, is not ) useful when providing forward guidance. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 5.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 7.5 Money Demand. 6.5 6.0 5.5 6 5.0 4.5 4.0 Money Supply INTEREST RATE (Percent) 7.0 3.5 0 0.1 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.2 0.6 0.7 0.8 New MS Curve ++ New Equilibrium (?) Suppose the Fed announces that it is lowering its target interest rate by 50 basis points, or 0.5 percentage points. To do this, the Fed will use open- market operations to the money by ▼ the public.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that, due to increased instability in the financial markets, a decrease in investor and consumer confidence occurs. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants the economy to return to full-employment as quickly as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."
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,…