ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 36.4, Problem 2QQ
To determine
Shift in money supply curve.
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At time t=0, R$= 10%, R€= 10%, and E$/€=Ee $/€ = 1. Assume that due to a sudden change in preferences, aggregate money demand in Australia temporarily increases (for any R$ and real output Y) at t=1. Assume that the Reserve Bank of Australia responds by temporarily increasing money supply to prevent any changes in R$.
In addition, assume the following: 1. The change in money supply was not anticipated at t=0 2. Prices are fixed in the short run but flexible in the long run 3. Output is always fixed at Y 4. R€= 10% at t=1 5. At t=2, aggregate money demand and money supply in Australia are back at their respective levels at t=0 6. A temporary change in money supply or money demand has no effect on prices in the short or long run 7. Ee $/€ = 1 at time t=1 and t=2
Select the most appropriate option:
A. E$/€=1 at t=1 and E$/€>1 at t=2
B. E$/€>1 at t=1 and E$/€=1 at t=2
C. E$/€=1 at t=1 and t=2
D. E$/€>1 at t=1 and t=2
E. E$/€<1 at t=1 and t=2
How do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.
Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?(A) M1 Increases, M2 decreases(B) M1 Increases, M2 no change(C) M1 Decreases, M2 no change(D) M1 no change, M2 decreases(E) M1 no change, M2 no change
Chapter 36 Solutions
ECONOMICS W/CONNECT+20 >C<
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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- The flatter the money demand curve and the steeper the investment demand curve, the greater the impact of monetary policy on national income True False In a severe economic recession, monetary policy would likely be a better method of stimulating the economy than fiscal policy. True False  If a chartered bank decided to keep ten percent excess reserves, the magnitude of the money multiplier would decrease. True Falsearrow_forwardPlease see attachment and type out the correct answer with proper explanation . Thank you .arrow_forwardFor the money multiplier to decrease, which of the following events would have to occur? A) a reduction in the public's preference for chequing deposits as opposed to holding currency B) a reduction in high powered money C) a decrease in the ratio of reserves to chequable deposits D) an increase in high powered money E) an increase in government spendingarrow_forward
- A hypothetical economy is having currency in circulation of $100m, and deposits of $400m. Assume that required reserves are $40m and excess reserves are 60m a) Calculate the monetary base. How much is the money supply? b) Calculate the effect on the money supply of a decrease of currency in circulation by $40m c) What would the central bank do to offset the effects of the decrease in the currency in circulation by $40m?arrow_forwardAssume that the monetary base (B) is $100 billion, the reserve-deposit ratio (m) is 0.1, and the currency-deposit ratio (cr) is 0.1. a) What is the money supply? b) If rr changes to 0.2, but cr is 0.1 and B is unchanged, what is the money supply? c) If rr is 0.1 and cr is 0.2, but Bis unchanged, what is the money supply?arrow_forwardSuppose that Rina makes a new cash deposit of $85,000 at her bank. Suppose that the bank is required only to keep new cash reserves equal to 25%. Then the maximum amount Rina's deposit will money supply is $ increase the decrease Which of the following assumptions must hold to ensure that the money creation process initiated by Rina's deposit reaches its potential? Check all that apply. Some borrowers cash the newly acquired funds. At least one bank in the banking system is conservative enough to keep some of its newly acquired cash deposits in its vault. All borrowers quickly spend all of their newly acquired funds. All banks in the banking system lend all of their excess reserves.arrow_forward
- Let us pretend that you are the director of monetary affairs for the Fed and you just got authority to pay interest on excess reserves. The initial conditions in the reserve and money markets, before the authority was granted are as follows: rr = .10 C = 200 D = 4000 ER = 00 a) Show all of your work. i) Calculate the MB. ii) Calculate the money multiplier. iii) What is the money supply (use mm x MB to calculate this)? b) If Rd= 407.5 – 50 iff,given the information above, what is the market clearing federal funds rate? Show all of your work Draw a reserve market diagram depicting exactly what is going on here! Label this initial equilibrium point as point A. (10 points for correct and completely labeled diagram) c) So you get this authority and decide, along with the FOMC, that the most appropriate rate to pay on excess reserves would be 20 basis points (0.20%). Given these new conditions, explain what would happen reserve demand and why. You don't need to derive an…arrow_forward1.D Assume the money supply grows at a rate of µ> 0 initially. At some time later, an immediate increase in the rate of growth of money supply is announced. In other words, the money supply will grow at a higher rate ' > . After that, a one time increase in the money supply is announced. Mark ALL the CORRECT graphs. a) d)arrow_forward28) If the required reserve ratio is 10% and the Federal Reserve purchases $50 million in treasury bonds on the open market, how could the money supply be impacted? a) Increase by a maximum amount of $500 million b) Increase by a maximum amount of $50 million c) Decrease by a maximum amount of $500 million d) Decrease by a maximum amount of $50 million 29) What is the most likely outcome of expansionary monetary policy? a) A decrease in the quantity of money, higher interest rates, and increased aggregate demand. b) An increase in the quantity of money, higher interest rates, and increased aggregate demand. c) A decrease in the quantity of money, lower interest rates, and decreased aggregate demand.. d) An increase in the quantity of money, lower interest rates, and increased aggregate demand.arrow_forward
- Q.8. The State Bank of Pakistan is considering two alternative monetary policies: i. holding the money supply constant and letting the interest rate adjust (LM curve is positively sloped), or ii. Adjusting the money supply to hold the interest rate constant (LM curve is horizontal). In the IS-L model, which policy will better stabilize output under the following conditions? Note desired level of output is Y a. All shocks to the economy arise from exogenous changes in the demand for goods and services. b. All shocks to the economy arise from exogenous changes in the demand for money.arrow_forwardDerive the money multiplier and explain the conditions under which it might be expected to remain constant, allowing the central bank to target MS.arrow_forwardWhen the Federal Reserve conducts an expansionarymonetary policy, what happens to the money supply?How does this affect the supply of dollar assets?arrow_forward
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