The flatter the money demand curve and the steeper the investment demand curve, the greater the impact of monetary policy on national income True False In a severe economic recession, monetary policy would likely be a better method of stimulating the economy than fiscal policy. True False If a chartered bank decided to keep ten percent excess reserves, the magnitude of the money multiplier would decrease. True False

The flatter the money demand curve and the steeper the investment demand curve, the greater the impact of monetary policy on national income True False In a severe economic recession, monetary policy would likely be a better method of stimulating the economy than fiscal policy. True False If a chartered bank decided to keep ten percent excess reserves, the magnitude of the money multiplier would decrease. True False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Homework (Ch 34) 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 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 4.5 4.0 3.5 3.0 2.5 2.0 - 1.5 + 1.0 + 0.5 0 Money Demand 0.1 0.2 0.3 0.4 Money Supply 0.5 0.6 0.7 0.8 14 New MS Curve + New Equilibrium ? Q Search this course
Explain why the simple deposit multiplier overstates the true deposit multiplier.
Match the correct policy with its description. Column A 1. 2. 3. 4. During a contraction or recession, the government can do two things: Decrease Taxes Or Increase Spending During a period of excessive inflation (during a period of expansion), the government can do two things: Increase Taxes Or Decrease Spending Increased lending by banks to customers (increased money supply) Lower Interest Rates on loans and bank accounts Increased borrowing from the Fed by banks Decreased lending by banks to customers (decreased money supply) Higher Interest Rates on loans and bank accounts Decreased borrowing from the Fed by banks % 5 M Column B a. Expansionary Fiscal Policy b. Contractionary Monetary Policy c. Contractionary Fiscal Policy d. Expansionary Monetary Policy
Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?
How do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.
Currency in Circulation (October 2020) 40.5 billion Nigerian currency Reserves (October 2020) 34.2 billion Nigeriancurrency M1 (October 2020) 2,465.9 billion Nigeriancurrency M2 (October 2020) 2,638.8 billion Nigeriancurrency Calculate the size of the actual money (M2) multiplier in October 2020. Round your answer to one decimal place. Nigeria's central bank, N. Bank, has not set a required reserve ratio (you can treat the required reserve ratio as 0%). Calcuate the excess reserve ratio for Norway in October 2020. Enter your answer in percent form without the percent sign. Round to one decimal place.
New money injected in the economy will have a multiplied effect on the macro-economy. True False
The banking system is vulnerable because a decrease in initial deposits in the banking system during a financial crisis would cause a a) Equal effect on money supply b) Equal but opposite effect on money supply c) Change of the Federal Reserve Chairman or Chairwoman d) Multiplier effect downward in the macroeconomy
Suppose that the money supply increases by 20 percent. If there is no inflation, what does the quantity theory of money tell us must happen to real GDP? It must increase by more than 20 percent. It must increase by less than 20 percent. It must increase by exactly 20 percent. None of the above are correct. Which of the following statements is true of the federal funds market? No banks are refused loans in the federal funds market. In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks. On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis, you plot each year's values for the United States as…
Draw and properly label three graphs of money supply-money demand (in one graph), investment demand, and AD-AS (6%). Then, referring to the graphs in your explanation, use one of the three traditional monetary tools to explain how the monetary transmission mechanism works to close recessionary and also inflationary gaps. (9%)
When government spending results in higher interest rates due to rising debt, what happens to consumption and investment according to a monetarist economist? Consumption and investment decrease due to the liquidity trap. Consumption and investment increase due to the crowding-out effect. Consumption and investment decrease due to the crowding-out effect. Consumption and investment increase due to the liquidity trap.
Suppose the Fed decided to sell $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. If the lending capacity or aggregate demand falls be sure to include a negative sign (-) with your answer. b. By how much will the banking system’s lending capacity change if the reserve requirement is 20 percent? d. By how much will aggregate demand initially change if investors change their behavior because of this change in available credit?