Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 19, Problem 6DQ
To determine
The basic equation of monetarism.
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4-2 Module Four Homework
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5
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To use money growth as a short-term monetary policy instrument, a central bank must belleve that
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there is a stable link between the monetary base and the rate of inflation
only money matters
there is an unpredictable relationship between money aggregates and inflation
the deposit expansion multiplier is volatile and unpredictable
In which of the following situations would you prefer to be the lender?
1) Expected inflation rate is 7 percent and the interest rate is 9 percent
2) The interest rate is 25 percent and the expected inflation rate is 50 percent.
3) The interest rate is 13 percent and the expected inflation rate is 15 percent.
O 4) The interest rate is 4 percent and the expected inflation rate is 3 percent.
O 5) Expected inflation rate is 1 percent and the interest rate is 4 percent
O6) None of the answers are correct
Consider a 5-year bond with a face value of $500 and an annual coupon rate of 5%. If the yield is 9% then
the market price of this bond will be approximately
O $464
O $436
O $394
• $442
Question 19
In the IS-LM model with interest-setting monetary policy and endogenous money, an expansionary
monetary policy will tend to cause
an increase in the level of income, an increase in the transactions demand for money and an increase in the quantity of
money
O an increase in the level of real income, an increase in the asset demand for money and a reduction in the quantity of
money
an increase in the level of income, a decrease in the asset demand for money and a reduction in the quantity of money
O adecrease in the level of income, an increase in the asset demand for money and an increase in the transactions
demand for money
Question 20
In the IS-LM model with interest setting monetary policy and endogenous money, an expansionary fiscal
policy will tend to
O increase the equilibrium level of…
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- INTEREST RATE 12 10 co + 2 O 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect.arrow_forwardFigure 30-3 On the following graph, MS represents the money supply and MD represents money demand. O 2.0. O 14.3. O 2.9. VALUE OF MONEY O 0.35. 0.35 MS, 8000 MS₂ Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately 13000 QUANTITY OF MONEY MDarrow_forwardIf the money supply is $60 billion, the velocity of money is 7, and real GDP is $240 billion, then the price level equals: 1.75 O 0.57 1.50. O 4 O 1.25arrow_forward
- 3arrow_forwardWhat do you expect will happen to the price level and real GDP in the short run when the bank of Canada buys domestic government bonds given a positively sloped SRAS curve? Select one: O a. Both the price level and real GDP will cross out increase. O b. Both the price level and real GDP will decrease. cross out O c. The price level will increase while real GDP cross out will decrease. O d. The price level will decrease while real GDP cross out will increase. O e. There is no change either to the price level or cross out the real GDParrow_forward1. Suppose that the money market can be depicted in the graph below Interest rate (M/P)² (M³/P)⁰ (M³/P)¹ G K A O B C O E L3 L1 12 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume that the price level does not change. The original equilibrium is at point O. Suppose that the Federal Reserve board lowered the reserve requirement for commercial banks. Briefly describe how you reached that conclusion. ( Identify the new equilibrium point and explain what happens to interest rates.arrow_forward
- Using the Taylor Rule, if the inflation rate is 2.5%, Equilibrium Real Federal Fund Rate is 2% and output gap is zero, the real neutral federal fund rate is.. . O 4.75% O 2.25 % O 2.5% O 4.5%arrow_forwardSuppose a bank discovers that its reserves will temporarily fall slightly short of those legally required. How might it remedy this situation through the Federal funds market? Now assume the bank fifinds that its reserves will be substantially and permanently defificient. What remedy is available to this bank? (Hint: Recall your answer to question 4.)arrow_forward6.arrow_forward
- 16arrow_forwardThe income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is nj = -0.02. Suppose that the central bank increases the money supply by 5%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate? O -0.3 (or -30%) O 0.3 (or 30%) O-0.1 (or -10%) O 0.1 (or 10%)arrow_forwardConsider a situation where the central bank increases the money supply. All other things being equal, if nominal GDP increased by $800 billion during a time when velocity was 4, by how much did the central bank increase the money supply? O $200 million $400 billion $400 million $200 billionarrow_forward
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