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- The diagram on the right shows the demand for money curve in a hypothetical economy. Suppose that the economy is initially at point E. Suppose that due to changes in expectations in the financial markets, the quantity of money demanded increases because of speculative reasons. This change would be associated with a movement from E to point EB C Interest Rate % EB Eo EA Quantity of Money MD (Y,P)The diagrams below illustrate two alternative approaches to implementing monetary policy. The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to Mº Interest Rate 3% 2% MI MO MD(P.Y) Quantity of Money part (1)-targeting the interest rate Interest Rate 2% FIGURE 28-1 MI MO MDP.Y) Quantity of Money part -targeting the money supply Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting___ in quantity of money demanded by in financial markets. Oa) decrease; selling government securities Ob) decrease; buying government securities Oc) increase; selling government securities d) increase; buying government securitiessuppose the federal reserve needs to bring inflation under control and decides to raise the interest rate by 1 point. Use the graph below to decide on the appropriare course of action if the reserve requirement is 0% but banks like to hold 10% of deposits as reserves and the public likes to hold 3% of their money as cash
- The government decides that the use of credit cards is bad, and introduces a tax on creditcard balances. That is, if a consumer or firm holds a credit card balance of X (in real terms), heor she is taxed tX, where t is the tax rate. Determine the effects on the equilibrium price andquantity of credit card balances, the demand for money, and the price level, and explain yourresults.Explain in detail the process of Monetary Policy transmission of a decrease in the cashinterest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cashrate ripple through the economy and lead to the target policy goal. (Three connected diagramsshould be used: (1) money supply and demand (2) investment demand schedule (3) AS/ADdiagram. Interest rates is the variable that connects the first and second diagram).“The costs of financing investment are related only tointerest rates; therefore, the only way that monetarypolicy can affect investment spending is through itseffects on interest rates.” Is this statement true, false, oruncertain? Explain your answer.
- Which of the following statements is not consistent with Liquidity Preference Theory? All else equal, an increase in nominal output will increase money demand All else equal, an increase in nominal output will decrease the nominal interest rate O All else equal, an increase in the money supply will decrease the nominal interest rate Money supply is exogenously determined by the Federal ReserveIn an economy where the central bank implements negative interest rates as a monetary policy tool, what is the most likely short-term impact on consumer savings behavior and bank profitability? A. An increase in consumer savings as people seek to safeguard their money and a rise in bank profitability due to increased lending. B. A decrease in consumer savings as the incentive to save diminishes and a decrease in bank profitability due to lower interest margins. C. No significant change in consumer savings behavior but an improvement in bank profitability due to lower borrowing costs. D. A shift in consumer investment towards riskier assets and challenges in bank profitability due to compressed interest margins. Please don't use chatgpt it is giving wrong answer and please provide valuable answerAccording to the portfolio theories of money demand, whatare the four factors that determine money demand? Whatchanges in these factors can increase the demand for money?
- Suppose that the Federal Reserve conducts an open market sale. This is considered monetary policy. In response, the size of the monetary base and the size of the money supply O contractionary; grows; grows by more expansionary: grows; grows by more contractionary; shrinks; shrinks by less O contractionary; shrinks; shrinks by more O expansionary; grows; grows by lessQuestion 4. Suppose that the bank of Canada uses money to buy bonds in financial markets during a recession. a. Use the theory of liquidity preference to graphically illustrate the impact of this purchase of bonds in open markets by the bank of Canada on the equilibrium interest rate in the market for real money balances. Be sure to label: į. the axes; ii. the curves; i. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values. Explain what happens to the equilibrium interest rate. b. How would this policy change affect nominal interest rates in the short run and the long run? Explain your answer using macroeconomic models that we studied in the past semester.Suppose that the government decides to increase government expenditure. a) Is this a fiscal or a monetary policy? b) Is this an expansionary or a contractionary policy? c) How will the equilibrium output and interest rate change in goods and money markets, respectively. Explain using the diagrams.