Use the figure below to answer the following question(s): Sm1 Sm2 MINI 125 175 250 Rate of Interest 0 O $250 O $325 O $175 O $125 Sm3 325 Quantity of Money Refer to the above graph, in which D, is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The transactions demand for money in this money market is: D₁ m

Use the figure below to answer the following question(s): Sm1 Sm2 MINI 125 175 250 Rate of Interest 0 O $250 O $325 O $175 O $125 Sm3 325 Quantity of Money Refer to the above graph, in which D, is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The transactions demand for money in this money market is: D₁ m

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 the Federal Reserve has set the money supply at $4 million. The table below shows the interest rate and total demand for money. Demand (in millions) Interest Rate 20% 15 10 5 0 $1 2 3 4 5 What is the equilibrium interest rate? Multiple Choice C O 10 percent 20 percent 5 percent O percent < # % & 8888886 $ @ 2 3 4 5 7
Considering open market operations, which of the following observations is incorrect? O it can be implemented quickly and cheaply. O it can be done quietly without à lot of political debate O it is potentially the most powerful tool to control the supply of money. O it is the most important method now used to control the supply of money.
10
Which quotation is irrelevant to the claim in paragraph 1 that "people have confidence that the money will hold its value because their government backs it"? "The Mint was charged with producing the nation's specie in copper, silver, and gold. O For the first 50 years or so, U.S. currency consisted almost entirely of coins." (paragraph 13) "Demand notes could be redeemed for silver or gold coins on demand and were legal tender guaranteed by the federal government." (paragraph 14) O "Most nations today back their own currencies as legal tender." (paragraph 15) O "Paper notes often consist of higher values than coins." (paragraph 15)
Question 3 In the market for reserves, suppose that the federal funds rate and discount rate are both at 7%. If the Federal Reserve Bank sells securities in the open market, then the equilibrium rate for reserves will and the amount of borrowed reserves will O not change; decrease O not change; increase O rise; increase O rise; decrease Question 4 When the Federal Reserve Bank lowers the reserve requirements for commercial banks in the economy, this causes the curve for reserves to decrease and so the curve shifts to the ----- O demand; right O demand: left O supply; right O supply; left
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Table 14 shows the balance sheet of the Tenth National Bank Assets Liabilities Reserves $517 Deposits $4,136 Loans $3,619 Total: $4,136 Total: $4,136 Refer to Table 14. Assume that this bank lends out its entire excess reserves. If Jerry deposits $426 of cash in a checking account in the Tenth National Bank, what's the maximum change in the money supply in the economy? O $2,982 G O $3,408 O $3,696 O $4,200 O $4,136
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2
Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: O the money supply by the whole banking system can increase by $1,000. O the money supply by the whole banking system can increase by $4,000. the money supply by the whole banking system can increase by $8,000. O the money supply by the whole banking system can increase by $5,000.
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $3.5 billion. VALUE OF MONEY 8 Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. 2.00 1.75 1.50 1.25 1.00 0.75 Quantity of Money Demanded (Billions of dollars) 1.5 2.0 3.5 0.50 025 0 7.0 3 QUANTITY OF MONEY (Billions of dollars) 7 101 MS, Money Demand M money ?
11. Assume that in an economy the total money supply, Ms, is SR100; the quantity of output, Q, is 50 units of a good; and the average price, P, of this output is SR10 per unit. Calculate the income velocity of money.