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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1. If LRAS = $500 billion, RGDP = $700 billion, and MPC = .8, then what should the Fed do? Be specific and list all three options. Also draw and label both the current situation and what would occur as the government impacted the economy through their actions. 2. What are the impacts in the short run of the above actions on the following: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium RGDP.
What are the shifts of both of the graphs provided? (I need this questions to be answered ASAP!!!) 1st Blank options are fall or rise 2nd Blank options are $1 billion, $2 billion, $4 billion 3rd Blank options are increase or decrease 4th Blank options are $2 billion, $1.6 billion, $4 billion 5th Blank options are crowding out, liquidity preference, multiplier, and automatic stabilizer
6. a) If US money supply in the beginning of the year is $1148 billion. Suppose the FedBank has decided to raise the reserve ration from 10 percent to 11 percent. How itwould affect the money supply? b) If tax multiplier is -2, what is the government spending multiplier? c) In order to increase equilibrium income, either the government can increasegovernment spending or may go for tax cut? What would you suggest and why?
Assume that the Fed's goal is to stabilize national income. Under what conditions would a money supply target be more desirable than an interest rate target?
Question #3: Consider an economy described by the following set of values: C = $3.25 trillion mpc = 075 1 = $1.2 trillion d = 0.30 G = $3.5 trillion T = $3 trillion NX = $1.5 trillion f=1 What is the expression for the Monetary Policy (MP) curve? x = 01 λ=1 r=2 What is the expression for the Aggregate Demand (AD) curve? Assume that =1%. What is the real interest rate (r)? and equilibrium level of output? Suppose the Bank of Canada increases r to r=3.5. What is the new real interest rate and new equilibrium level of output? What type of monetary policy did the Bank undertake? What would be the reason the bank that the Bank would undertake this type of policy? (Maximum 2 sentences)
I am having troubles understanding parts B & D. Not sure what formula(s) to use. Please double check answers. I have posted this twice and answers have been incorrect, I am not sure why though.
Year 2022 2023 Potential Real GDP $18.1 trillion 18.4 trillion Real GDP $18.1 trillion 18.6 trillion Price Level 150 155 Refer to Table 15-6. Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary. If the Fed wants to keep real GDP at its potential level in 2023, should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?
Question 2 Suppose the federal funds rate is currently at its target level. Then suppose the demand for federal funds increases. Which one of the following statements is TRUE? Question 2 options: If the Fed does nothing, the federal funds rate would decrease Because the Fed sets the federal funds rate by fiat, the rate would remain unchanged without any further intervention The Fed would likely respond by increasing the supply of federal funds to keep the federal funds rate at its target level The Fed would likely reduce the demand for federal funds back to its original level by decreasing the reserve requirements for banks The Fed would likely respond by mandating a decrease in the federal funds rate to accommodate the change in demand
From any point below the current LM curve, money market equilibrium can be restored by some combination of a ________ income and a ________ interest rate that ________ the demand for money. Select one: a. lower, higher, increases b. higher, higher, increases c. lower, higher, reduces d. higher, lower, increases
2
Blank 4: velocity is assumed to be consumed, the Federal Reserve controls M, or the AD curve is sloping downward Blank 5: less than, the same as, or greater than Blank 6: Simple quantity theory of money, importance of the Federal Reserve, or fact that monetary policy can increase real GDP