Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) Investment (billions of dollars) Interest Rate $50 60 70 80 90 7% $100 110 120 130 140 5 4 3 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to O A) buy. $2 billion B) buy, $4 billion C) sell, $2 billion D) sell, $4 billion

Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) Investment (billions of dollars) Interest Rate $50 60 70 80 90 7% $100 110 120 130 140 5 4 3 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to O A) buy. $2 billion B) buy, $4 billion C) sell, $2 billion D) sell, $4 billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system_________(increase/decrease), banks' demand for borrowed reserves ________(rises/decline) , and the federal funds rate_______(increases/decreases).
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
Federal Funds Rale The graph to the right illustrates how the Fed uses discounting to keep the federal funds rate from rising far above the federal funds target. It shows a rightward shift of the demand curve for reserves from R to R. The initial equilibrium is at point 1, where the discount rate (a) is above the federal funds rate, which is equal to its target level, i. The shift moves the equilibrium to point 2, where the federal funds rate equals the discount rate ( =l4). According to this graph, at point 2, borrowed reserves are: !3! A. equal to the distance between B and C. B. equal to the distance between A and B. C. equal to the distance between A and C D. zero.
6. Changes in the money supply 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 3.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.5 5.0 New MS Curve Money Demand 4.5 4.0 3.5 3.0 2.5 2.0 1.5 0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (?) Suppose the Fed announces that it is raising 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. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing…
2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 12 Money Supply 10 Money Demand Money Supply MD1 2 MD2 10 20 30 40 50 60 MONEY (Billions of dollars) INTEREST RATE (Percent)
Assume the legal reserve ratio is 20 percent. Suppose that the Fed buys $500 of securities from individuals, who deposit the cash in checking accounts. The supply of money in the economy will: remain unchanged. rise by $2,500. fall by $3,000. fall by $3,500.
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According to the reading, the Fed's mission is to: promote easy access to commodity money. promote maximum employment and stable prices. promote high interest rate for savers. promote an understanding of its role in the economy.
Please answer question 4:
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7)According to the Taylor rule, if inflation has risen by 4 percentage points above its target of 2 percent, the Fed should Group of answer choices grow the money supply at a rate of 6 percent per year. raise the real federal funds rate by 2 percentage points. raise the real federal funds rate by 3 percentage points. raise the real federal funds rate by 6 percentage points.
Question 2 is attatched. Asking for an answer for question 4