Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 30, Problem 2PA
Subpart (a):
To determine
Value of money and price level.
Subpart (b):
To determine
Value of money and price level.
Subpart (c):
To determine
Value of money and price level.
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Read the event
The Federal Reserve raises reserve requirements.
What would likely result from this event?
A. An economy would see a slight decrease in aggregate demand.
B. Interest rates on loans decline.
C. Consumer demand would increase thus increasing prices.
D. Inflation would reach levels that are acceptable for full employment.
Suppose that changes in bank regulations expand the availability of credit cards, so people need to hold less cash.
a. How does this event affect the demand for money?
b. How does this event affect the money velocity?
c. If the Fed does not respond to this event, what will happen to the price level? d. If the Fed wants to keep the price level stable, what should it do?
Q. Assume that the central bank fixes the money supply. What would be the effect on the value and the quantity of money if the central bank cut the money supply? What would you expect to happen to the price level?
Chapter 30 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…arrow_forwardMoney supply versus interest rate targets. assume that the economy's real GDP is growing. a. What will happen to money demand over time? b. If the Fed leaves the money supply unchanged, what will happen to the interest rate over time? c. If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time? d. What would be the effect of the policy described in part (c) on the economy's stability over the business cycle?arrow_forwardThe Federal Reserve determines that the equilibrium level of output is below full employment and the economy is at the risk of deflation. The best response of the Federal Reserve is to Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a sell bonds buy bonds C coordinate with Congress d do nothingarrow_forward
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