Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 13, Problem 13CQ
To determine
The impact of money supply in different situations.
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Students have asked these similar questions
How would the Federal Reserve
stimulate the United States
economy and reduce
unemployment?
A. increase interest rates
because high interest rates
encourage business growth
and expansion
B. increase consumer spending
by reducing the money
supply
C. increase the discount rate it
charges banks, which would
increase the money supply
D. decrease interest rates
because low interest rates
encourage business growth
and expansion
What problems an economy may face without money supply? How commercial banks create money in fractional reserve banking system? How a central bank uses many tools to control inflation in an economy?
How does the central bank control the
money supply and interest rates to
influence the economy?
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- Banks and the money supply: 1. While cleaning your apartment, you look under the sofa cushion and find a $50 bill. You deposit the bill in your checking account. The Fed’s reserve requirement is 20% of deposits. A. What is the maximum amount that the money supply could increase? B. What is the minimum amount that the money supply could increase?arrow_forwardDue to the huge inflow of money to Spain, price levels have begun to increase. The government worries that this huge money supply will be an economic problem soon. Which of these monetary policies will work to solve this problem? a. Increase cash reserve ratio, increase interest rates and buy government bonds b. Decrease cash reserve ratio, decrease interest rates and sell government bonds c. Decrease cash reserve ratio, increase interest rates and sell government bonds d. Increase cash reserve ratio, increase interest rates and sell government bondsarrow_forwardThe monetary system in any economy facilitates trade and allows people to trade more efficiently, as compared to a barter economy. In the United States, the monetary authority is the Federal Reserve System (also referred to as the Federal Reserve, or informally, as the "Fed"_) What are the requirements for something to be considered money? Why does the dollar have value? What does the money supply consist of and what are the respective amounts in the total money supply for the United States? What are the primary functions of the Fed? What role does the Federal Open Market Committee (FOMC) play in our economy? What role do the financial institutions (commercial banks and other institutions) play in our financial system? What is meant by the term "fractional-reserve banking" in our system? What are the implications for consumers? What are the tools available to the FED for controlling the money supply? Which are used most often?Which are most effective? How does the money multiplier…arrow_forward
- When the Fed wants to reduce the supply of money circulating in the country, it will sell treasuries? True or Falsearrow_forwardThe Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury securities, usually Treasury bills. The increase or decrease of money in circulation helps the Fed to control inflation or deflation. This has an effect on your disposable income. Research the Federal Reserve system and money supply, then answer the following questions. Under what conditions would the Fed choose to decrease the money supply, how would it do so, and what is the goal of doing so? How does the Fed factor inflation into its actions?arrow_forwardThe Fed must know how much money people want to hold so that it can supply the appropriate amount?arrow_forward
- What would be the immediate effect if the central bank increases the cash reserve ratio? a. It reduces the cash reserve with the commercial banks. b. It increases the cash reserves with the commercial banks. c. There is no change in the amount of cash reserve at the commercial banks. d. It increases the borrowings of commercial banks.arrow_forwardEconomics urgent!! This country is witnessing a recession. The Chief economist in the government of this country decides that in order to increase the rate of economic growth of the country they need to increase the money injected into the economy. Graph the implications of this money increase on: a. The money demand and money supply in the short, and b. The money market in the long-run, and c. The inflation rate. Label your axes and explain your answers.arrow_forwardWhich of the following lists two things that both increase the money supply? a. The Fed buys bonds and raises the discount rate b. The Fed buys bonds and lowers the discount rate c. The Fed sells bonds and raises the discount ratearrow_forward
- Explain central bank money and bank money. Why are they different and how are they created?arrow_forwardwhat happens is the central bank decreases the money supply?arrow_forwardIn 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 answerarrow_forward
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