Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 13, Problem 10CQ
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Identify the impact on the money supply due to increase in the holding of currency and decrease checking deposit amount.
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Economics: Private and Public Choice (MindTap Course List)
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- What are the dangers of increasing the money supply too slowly? Too rapidly?arrow_forwardWHAT ARE THE GOALS OF MONETARY POLICY?arrow_forwardHomework (Ch 34) 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 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 4.5 4.0 3.5 3.0 2.5 2.0 - 1.5 + 1.0 + 0.5 0 Money Demand 0.1 0.2 0.3 0.4 Money Supply 0.5 0.6 0.7 0.8 14 New MS Curve + New Equilibrium ? Q Search this coursearrow_forward
- What would be the value of the monetary multiplier if banks hold no excess reserves, the currency-to-deposit ratio is 0.86, and the required reserve ratio for checkable deposits is 42%?arrow_forwardHow do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.arrow_forwardSuppose your grandma sends you $100 for your birthday and you deposit that $100 into your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, how much have the bank's reserves have increased by and how much have the bank's checkable deposits have increased by?arrow_forward
- Explain why low levels of economic confidence may hinder the effectiveness of monetary policy?arrow_forwardSuppose the Federal Reserve wants to fix the U.S. exchange rate with the yen at $0.008 per yen. If the equilibrium market exchange rate were significantly lower at $0.007 per yen, what would the Fed need to do to maintain the fixed rate of $0.008 per yen? What would be the effect of these actions on the money supply in the U.S.? Explain.arrow_forwardWhat does liquidity mean? What are some less than 100% liquid monetary instruments?arrow_forward
- Suppose that the reserve requirement is 8%, the excess reserves-to-deposit ratio is 0.51, and the currency-to-deposit ratio is 0.34. The value of the money multiplier is 1.44. (Enter your response rounded to two decimal places.) If the Fed conducts an open market operation and buys $10 million worth of bonds from banks, what happen to the money supply? The money supply will by $ million. (Enter your response rounded to two decimal placearrow_forwardThe money multiplier equalsarrow_forwardWhy don't economists agree with backing paper money with a certain commodity, such as gold? Supplies of commodities like gold can change (expectedly, unexpectedly ). A sudden increase in the availability of a commodity could (increase, decrease) the money supply too quickly and trigger inflation. If the government backed the currency with gold, then the money supply ( would, would not ) vary with the availability of gold. A persistent scarcity of a commodity could (increase , reduce ) the money supply too much and cause a recession and unemployment.arrow_forward
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