Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 13, Problem 5QP
To determine
The money supply.
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Students have asked these similar questions
If banks start paying higher interest rates on checking accounts, we would expect, assuming everything else held equal, Group of answer choices
a) the demand for money to become more sensitive to changes in the interest rate. this is not correct
b) the demand for money to become horizontal.
c) the relationship between interest rates and the demand for money to be unaffected.
d) the demand for money to become less sensitive to changes in the interest rate.
e) a decrease in the supply of money.
The Federal Reserve does not target both the money supply and an interest rate because
it would be too confusing to Wall Street and would disrupt the financial markets.
it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy.
it would be illegal according to the Federal Reserve Act.
the Fed cannot achieve a target for both the money supply and an interest rate at the same time.
A mission of the Federal Reserve is to promote a combination of low interest rates and low unemployment. Why can it be difficult to accomplish both of these at the same time?
Chapter 13 Solutions
Macroeconomics
Ch. 13.1 - Prob. 1STCh. 13.1 - Prob. 2STCh. 13.1 - Prob. 3STCh. 13.3 - Prob. 1STCh. 13.3 - Prob. 2STCh. 13.3 - Prob. 3STCh. 13.3 - Prob. 4STCh. 13 - Prob. 1QPCh. 13 - Prob. 2QPCh. 13 - Prob. 3QP
Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Prob. 7QPCh. 13 - Prob. 8QPCh. 13 - Prob. 9QPCh. 13 - Prob. 10QPCh. 13 - Prob. 11QPCh. 13 - Prob. 12QPCh. 13 - Prob. 1WNGCh. 13 - Prob. 2WNGCh. 13 - Prob. 3WNGCh. 13 - Prob. 4WNGCh. 13 - Prob. 5WNGCh. 13 - Prob. 6WNGCh. 13 - Prob. 7WNGCh. 13 - Prob. 8WNGCh. 13 - Prob. 9WNGCh. 13 - Prob. 10WNG
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- Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds.arrow_forwardExplain why the Reserve Supply is perfectly elastic at Discount Window Rate.arrow_forwardSuppose the Federal Reserve has set the money supply at $10 million. The table below shows the interest rate and total demand for money. Interest Rate Demand (in millions) 20% $2 15 4 10 6 5 8 0 10 What is the equilibrium interest rate? Multiple Choice 20 percent 15 percent 0 percent 5 percentarrow_forward
- During times of rising inflation, the Fed will undertake monetary policy or "tight money policy."arrow_forwardThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has 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 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0 Money Demand 0.1 0.2 0.3 0.4 Money Supply 0.5 0.6 0.7 0.8 New MS Curve New Equilibrium ?arrow_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_forward
- The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has 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 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open-market operations to (increase/decrease) the (demand for/supply for) money by (buying bonds from/selling bonds to) the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate…arrow_forwardSuppose the Fed announces that it is raising its target interest rate by 25 basis points, or 0.25 percentage point. To do this, the Fed will use open-market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to and the quantity of output demanded to at each price level. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardIf Money Supply increases, the equilibrium interest rate will: a) be ambiguous b) increase c) decrease d) not changearrow_forward
- A problem that the Fed faces when it attempts to control the money supply is that the Fed can only control excess reserves but not total reserves. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. the Fed does not control the amount of money that households choose to hold as deposits in banks.arrow_forwardWhich of the below statements DOES NOT CORRECTLY describe the immense power or policy choice of the Federal Reserve (the Fed)? Group of answer choices The Fed can inject money into the financial system after sudden shocks, such as the 1987 stock market crash or the terrorist attacks on Sept. 11, 2001. The Federal Reserve controls the money supply and therefore the credit tap for the economy. The Fed can use monetary policy to counteract economic downturns or prevent them from happening. When the Fed opens the credit tap and increases the money supply, interest rates rise and people buy less and borrow less.arrow_forwardWhich of the following best describes the cause-effect chain of an expansionary monetary policy? A) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. B) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.arrow_forward
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