Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 33, Problem 4MCQ
To determine
To identify:
The option that correctly states the policy that FED inculcates as a strategy to control inflation.
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Students have asked these similar questions
When the value of the dollar falls, the price of assets rise. When the Fed injects money into the banking system increasing the money supply,_______________
the interest rates tend to increase, and stock market tends to rise.
the interest rates tend to increase, and stock market tends to fall.
the interest rates tend to decrease, and the stock market tends to rise.
the interest rates tend to decrease, and the stock market tends to fall.
State whether you agree or disagree with the following statement:
Explain what happens to Money Demand and Interest Rates
Inflation, a rise in the price level, causes the demand for money to decline. Because inflation causes money to be worth less households desire to hold less of it.
Options to choose from = Disagree, Agree, Increase, Decrease, Remain Unchanged
Agree or Disagree ________
Impact on Money Demand________
Impact on Interest Rate _________
Economics
Suppose that the income elasticity of money
demand is 0.4. Nominal interest rates do not
change over time. If money supply increases by
20% every year, while real income only increases
by 1%, what is the inflation rate?
Chapter 33 Solutions
Foundations of Economics (8th Edition)
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
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- If inflation is 5%, the real growth rate is 3%, and the change in velocity is 2%, then the increase in the money supply is _____arrow_forwardImagearrow_forwardThe income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is n₁ = -0.06. Suppose that the central bank increases the money supply by 2.6%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate? -0.3 (or -30%) 0.3 (or 30%) -0.1 (or -10%) 0.1 (or 10%)arrow_forward
- Maximum employment and moderate long-term interest rates are best achieved with price stability. high and variable inflation rates. high real interest rates. high and stable inflation rates. high short-term interest rates. If the Fed sells U.S. government securities to banks, the federal funds rate ________ and banks' reserves ________. falls; increase falls; decrease rises; do not change rises; decrease rises; increase The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run. cannot; can cannot; cannot can; can can; cannot might be able to; might be able to In the long run, the real interest rate is determined by the nominal interest rate. the expected inflation rate. saving supply and investment demand. Fed actions. the multiplier effect. If the Fed raises the federal funds rate, in the short run the interest rate falls. exports increase and imports…arrow_forwardAn increase in the interest rate will cause an increase in the demand for money. True Falsearrow_forwardTyped answer.arrow_forward
- 0 The Fed exerted downward pressure on interest rates by conducting open market sales which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. The Fed exerted upward pressure on interest rates by conducting open market sales which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. The Fed exerted downward pressure on interest rates by conducting open market purchases which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital, The Fed exerted upward pressure on interest rates by conducting open market purchases which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. Question 24 3 Which of the following is the most plausible explanation for the shift in the aggregate demand curve…arrow_forward63. Suppose Canadian real GDP is currently equal to potential GDP. Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian-made raw materials. If the Bank of Canada is committed to its inflation target then it should implement an expansionary monetary policy by increasing its target for the overnight interest rate. not intervene in the economy at all since this shock will not have any real effects in the short run. implement a contractionary monetary policy by increasing its target for the overnight interest rate. implement a contractionary monetary policy by decreasing its target for the overnight interest rate. implement an expansionary monetary policy by decreasing its target for the overnight interest rate.arrow_forwardAssume there is only one good in the economy, corn. The economy has enough labor, capital, and land to produce 2000 bushels of corn. V is constant. In 2020, money supply was $3,600 and the price of corn was $9/bushel. For 2021, the Fed increases MS by 10%. a) Compute the 2021 values of nominal GDP and P. Compute the inflation rate for 2020–2021. b) Suppose technological progress causes Y to increase to 2250 in 2020. Compute the 2020-2021 inflation rate. Please answer the entire questionarrow_forward
- The equilibrium interest rate is determined at the intersection of the aggregate demand and aggregate supply curve. to fluctuate over time. 0000 by the Fed. at the intersection of the total demand for money curve and the supply of money curve.arrow_forwardAn unexpected increase in the money supply increases ".........." in the short run and redistributes wealth "........" in the long run? employment; from creditors to debtors employment; from debtors to creditors unemployment; from creditors to debtors unemployment; from debtors to creditorsarrow_forward28) When the Fed raises the federal funds rate A) the value of the dollar rises on the foreign exchange market. B) consumption increases. C) net exports increase. D) the value of the dollar falls on the foreign exchange market. 29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. B) means that the inflation rate must exceed 5 percent in order for the rule to be effective. C) has been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations.arrow_forward
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