Whether they are true or false and why.Your answer is not correct unless you saywhya) If there were a sudden decrease inpopulation, we would anticipate a decreasein the real return to capital.b)ln normal times under a fractional reservesystem, banks often carry excess reserves toincrease profits.c) During a period with deflation, lenderswill be worse off because borrowers arepaying back loans with currency that isworth more

a) True A decrease in the population leads to a fall in the level of output in an economy. This is…

Answered: Whether they are true or false and why.…

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 a typical small open economy in a developing country is characterized by: a. The Central Bank has set a required reserve ratio of 7.5 % for the entire banking system. b. There are five (5) Banks in this simple banking system, BANK A, BANK B, BANK C, BANK D and BANK E. c. BANK A has an initial deposit of Ksh. 20,000 and makes a provision of 2.5% to retain additional reserves. A customer also presents a cheque of Ksh 2,000, which is honored. A Customer who is advanced money from Bank A keeps aside 5% of the advance for his personal use. d. Bank B also makes a provision of 2.5% to retain additional reserves. A customer also presents a cheque of Ksh 1,430, which is honored. A Customer who is advanced money by Bank B keeps aside 10% of the advances for personal use. e. The government through the Central Bank injects an additional Kshs. 10,000 into the banking sector through Bank C and bank D to support the Banking Sector, so that each receives 50 percent of…
For all questions assume the following starting point: The money supply (M) is composed of currency (C) held by the non-bank private sector (NBPS) and demand deposits (DD) held at banks. Banks are required to hold cash reserves (CR) equal to 10% of their demand deposit liabilities. The remainder of the bank’s DD liabilities is backed by loans (L). Initially, banks have 2000 in cash reserves and the NBPS holds 500 in currency. Currently, banks not hold excess reserves. a. What are the initial values for DD, L, and M? DD= $20,000 L= $18,000 M= $5,000 b. What happens to the values in part a, if the NBPS decides to hold an additional 200 in currency? DD = 20,000, L = 18,000, M = 20,700 c. What would happen to the values in part a if banks decided to hold 2.5% excess reserves? DD = 20,000, L = 17,500, M = 20,500 d. What happens to the values in part a if concerns about the economy's future caused both b and c to happen? DD = 20,000, L = 17,500, M = 20,700 Given the results in…
Draw the correctly labeled graph that shows the impact of a decrease in the IOR rate on the quantity of reserves in an ample reserve model.
Consider a fall in the money supply and the impact that this will have on equilibrium in the goods market via both transmission mechanisms. Which of the following would lead to the biggest change in national income following this fall in the money supply? (a) An investment demand curve that is unresponsive to interest rate changes and an elastic liquidity preference curve. (b) An elastic investment demand curve and a high level of responsiveness from export and import demand following a change in the exchange rate. (c) A lack of responsiveness of the exchange rate to interest rate changes and an endogenous money supply. (d) A low level of responsiveness from export and import demand to a change in interest rates and an exogenous money supply curve.
Robust economy growth ships the transactions demand for money. Consequently, growth will tend to either raise our interest rate or decrease those rates. Please see which direction the rates move, and explain why
Robust economic growth shifts the transactions demand for money. Consequently, growth will tend to either raise our interest rates or decrease those rates. Please say which direction the rates move, and explain why?
Suppose that Money Supply is 192.36 and Money Demand is 34.83 in Country A. What should be the stance of Monetary policy? The Central Bank should reduce Money Supply using Open Market Operation by Calculate the value that correctly fills in the blank. Write the answer in 2 decimal points, as a number, no $. example 54.4333 will be reported as 54.43 or 54 will be reported as 54.00
we make use of the general monetary model here, where L is no longer assumed constant, and money demand is inversely related to the nominal interest rate. Recall from that earlier question inflation rate in Korea is = 10% and inflation rate in Japan is = 0%. In addition, assume that the bank deposits in Japan pay 2% interest rate (i¥ = 2%). Compute the interest rate paid on South Korean won deposits (iwon). Using the definition of the real interest rate, show that the real interest rate in South Korea (rwon) is equal to the real interest rate in Japan (r¥) Suppose the Bank of Korea decreases the money growth rate from 15% to 10% and the inflation rate falls proportionately (one for one) with this decrease. If the nominal interest rate in Japan remains unchanged, what happens to the interest rate paid on Korean won deposits? Using time series diagrams (impulse graphs), illustrate how this decrease in the money growth rate affects South Korea’s…
Assume that increasing price levels cause the above shift in money demand. If the central bank desired to keep levels of investment consistent with those prior to the shift of MD, what would be their optimal solution using open market operations? a. Decrease the discount rate b. Increase the federal budget deficit c. Enforce tariffs on imported resources d. Increase money supply by purchasing securities e. Sell securities in order to increase borrowing activity
Money as a factor of production. (This is adapted from Dorn busch and Frenkel 1973.) Consider the Sidrauski model presented in section 4.5. Assume, however, that money services are also an input in production. A simple formalization is that production is given by and v tends to zero as m goes to infinity. Assume for simplicity that n = 0. Characterize the steady state, and contrast the effects of money growth with those obtained in the original Sidrauski model.
Assume that the central banks (bog) primary goal is to correct a weak economy. how can it use open market operation to achieve its goal?what is a possible adverse effect of this action by the central bank even if it achieves its goal?

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