Use the information in the following table to answer the next question. (1) Interest Rate 4% 5 6 7 8 (2) Investment (3) Investment (billions of (billions of dollars) dollars) $100 $80 90 80 70 60 70 60 50 40 In the table, investment is in billions. Suppose the Fed reduces the interest rate from 6 percent to 5 percent at a time when the inves demand declines from that shown by column (2) to that shown by column (3). As a result of these two occurrences, investment will

Use the information in the following table to answer the next question. (1) Interest Rate 4% 5 6 7 8 (2) Investment (3) Investment (billions of (billions of dollars) dollars) $100 $80 90 80 70 60 70 60 50 40 In the table, investment is in billions. Suppose the Fed reduces the interest rate from 6 percent to 5 percent at a time when the inves demand declines from that shown by column (2) to that shown by column (3). As a result of these two occurrences, investment will

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter26: Monetary Policy

Section: Chapter Questions

Problem 3SQP

See similar textbooks

Similar questions

Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 100
Use the information in the following table to answer the next question. In the table, investment is in billions. (1) Interest Rate (2) Investment (billions of dollars) (3) Investment (billions of dollars) 4% $100 $80 5 90 70 6 80 60 7 70 50 8 60 40 Suppose the Fed increases the interest rate from 5 percent to 6 percent. As a result of this increase in the interest rate, using column (2) investment will Multiple Choice increase by $20 billion. decrease by $10 billion. increase by $10 billion. decrease by $20 billion.
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will always lower long-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
[Related to Solved Problem 5.26] Use the data on Treasury securities in the following table to answer the question: 2 year Date 03/05/2010 1 year 0.36% 0.88% 3 year 1.49% Source: U.S. Department of the Treasury. Assuming that the liquidity premium theory is correct, on March 5, 2010, what did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.05% and the term premium on a three-year Treasury note was 0.06%? The expected interest rate is%. (Round your response to two decimal places.)
46. Suppose a financial analyst suggests that investors should now hold cash instead of stocks or bonds. The analyst is probably encouraging an increase in money holdings for which reason? portfolio demand present value demand speculative demand transaction demand precautionary demand
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. If the Fed injects a huge amount of money into the markets, inflation is expected to decline, and long-term interest rates are expected to rise. During recessions, short-term interest rates decline more sharply than long-term interest rates. When the economy is weakening, the Fed is likely to decrease short-term interest rates. True False O O O O O O
Assume you are an economist at Reserve Bank of Vanuatu. The government has been considering tax reforms to modernize the economy. Using relevant diagram(s) show and explain how a change in the income tax is likely to influence real interest rate, savings and investment.
The interest rate is determined by... a) Financial markets and do not affect the market for goods and services b) Markets for goods and services and do not affect financial markets c) Financial markets and affect investment (I) so that it will affect the market for goods and services d) The market for goods and services and affects investment (I) so that it will affect the financial market
: As a manager of a firm, you are concerned about a potential change in interest rates, which would affect money market prices. An economic report has recently highlighted the following economic conditions: Saving rate is expected to increase slightly in 2022. Bank Negara Malaysia is expected to implement expansionary monetary policy in 2022 [Assuming no threat of inflation]; and Inflation rate is expected to decline slightly in 2022. Assuming that money market prices are not exposed to credit risk, how will money market prices change based on the report? Explain. [
ces Refer to the News Wire to answer one question. NEWS WIRE: DISCOUNT RATES Fed Cuts Key Interest Rate Again Washington, DC-Alarmed by the rapidly weakening economy, the Federal Reserve cut a key interest rate again yesterday. The Fed cut the discount rate, dropping it from 2.75 percent at the beginning of the year to a mere 0.25 percent now. The discount rate is the rate the Fed charges for loans it makes to private banks. By dropping the rate, the Fed is hoping banks will borrow more money, then use that money to make new loans to businesses and consumers. What has spooked the Fed is that GDP is falling at the fastest rate in 50 years. The Fed is hoping that record low interest rates will prompt more spending, preventing a protracted recession. Source: News accounts of March 2020. If every one-point change in the federal funds rate alters aggregate demand by $160 billion, how far would AD shift in response to interest rate cuts? Instructions: Enter your response as a whole number.…
(1) Suppose you just bought a treasury bill for $965 that matures in three months (91 days), and has a face value of $1,000. What is your bond’s current discount yield? What is your bond’s current investment yield? ANS: (2) The French Government runs a budget surplus to finance its expenditure. Use the loanable funds model to show what happens to the interest rate, investments, and the quantity of loanable funds. ANS: (3) Which of the following is money? An American Express traveler’s check Checking deposits at Washington Mutual bank. The check you have just written to pay for school fees. ANS:
Suppose that to finance its credit policy, the Fed pays an annual interest rate of 0.25 percent on bank reserves. During the course of the current year, banks hold $1.3 trillion in reserves. What is the total amount of interest the Fed pays banks during the year? The Fed pays banks S billion of interest during the year. (Enter your response rounded to two decimal places.)