Question
Book Icon
Chapter 4, Problem 1QAP

a)

To determine

Whether income and financial wealth are both examples of stock variables.

a)

Expert Solution
Check Mark

Explanation of Solution

A stock variable is measurable at a particular point of time, whereas a flow variable changes during a period of time.

Income is a flow variable, while the financial wealth is defined as a stock variable that would be related to the value of wealth during a given point of time.

Hence, the given statement is “False”.

b)

To determine

The term investment, as used by economists, refers to the purchase of bonds and shares of stock.

b)

Expert Solution
Check Mark

Explanation of Solution

Investments do not refer to the purchase of bonds and shares of stock as they are the financial assets.

It is a false statement as the term“investment” is used by economists for the purchase of new capital goods.

c)

To determine

The demand for money does not depend on the interest rate because only bonds earn interest.

c)

Expert Solution
Check Mark

Explanation of Solution

The demand for money is inversely related to interest rates. That is, the demand for money is a downward sloping curve depicting a negative relationship between the quantity of money demanded and the interest rates.

Thus, the given statement is “False”. Money demand describes the portfolio decision to hold wealth in the form of money rather than in the form of bonds. The interest rate on bonds is relevant to this decision.

d)

To determine

About 2/3 of U.S. currency is held outside the United States.

d)

Expert Solution
Check Mark

Explanation of Solution

A large proportion of the United States currency goes for the circulation outside the US.

The statement is “True” as the Treasury and Board of Governors have estimated that approximately there is 60 percent of all U.S. banknotes that are part of the circulation and are close to $500 billion, that has been held outside the United States.

So far, the U.S. banknotes have also held as an attractive asset to residents of nations due to political or economic uncertainty.

e)

To determine

The central bank can increase the supply of money by selling bonds in the market for bonds.

e)

Expert Solution
Check Mark

Explanation of Solution

If the Fed buys bonds in the open market, they would increase the money supply in the economy which would result in the swapping out bonds due to the exchange of the cash to the general public.

So, the statement is “False” as the money supply would decrease if the Fed sells bonds.

f)

To determine

The Federal Reserve can determine the money supply, but it cannot determine the interest rate − not even the Federal Funds rate − because interest rates are determined in the private sector.

f)

Expert Solution
Check Mark

Explanation of Solution

The Fed can directly or indirectly affect the interest rates in the market through open market operations or changes in the federal fund's rates/reserve requirement rates.

The statement is “False” as the reserve balances at the Federal Reserve would lead to the reserves below the system's requirements.  It would be targeted by the FOMC to define the federal funds rate, but actually, it is the market that determines the actual rate itself.

g)

To determine

Bond prices and interest rates always move in opposite directions.

g)

Expert Solution
Check Mark

Explanation of Solution

To summarize, interest rates and bond prices have an inverse relationship, which implies that a rise in the interest rate leads to a fall in the bond prices.

It is “True” as higher interest rates on bonds decrease the face value of bonds and vice-versa.

g)

To determine

Since the Great Depression, the United States has used federal deposit insurance to deal with bank runs.

g)

Expert Solution
Check Mark

Explanation of Solution

FDIC insurance is described as panic insurance which maintains confidence within the banking system.

So, it is “True”.During the market crash, the FDIC has helped in preventing bank panics for another period of Depression.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Test Preparation QUESTION 2 [20] 2.1 Body Mass Index (BMI) is a summary measure of relative health. It is calculated by dividing an individual's weight (in kilograms) by the square of their height (in meters). A small sample was drawn from the population of UWC students to determine the effect of exercise on BMI score. Given the following table, find the constant and slope parameters of the sample regression function of BMI = f(Weekly exercise hours). Interpret the two estimated parameter values. X (Weekly exercise hours) Y (Body-Mass index) QUESTION 3 2 4 6 8 10 12 41 38 33 27 23 19 Derek investigates the relationship between the days (per year) absent from work (ABSENT) and the number of years taken for the worker to be promoted (PROMOTION). He interviewed a sample of 22 employees in Cape Town to obtain information on ABSENT (X) and PROMOTION (Y), and derived the following: ΣΧ ΣΥ 341 ΣΧΥ 176 ΣΧ 1187 1012 3.1 By using the OLS method, prove that the constant and slope parameters of the…
QUESTION 2 2.1 [30] Mariana, a researcher at the World Health Organisation (WHO), collects information on weekly study hours (HOURS) and blood pressure level when writing a test (BLOOD) from a sample of university students across the country, before running the regression BLOOD = f(STUDY). She collects data from 5 students as listed below: X (STUDY) 2 Y (BLOOD) 4 6 8 10 141 138 133 127 123 2.1.1 By using the OLS method and the information above derive the values for parameters B1 and B2. 2.1.2 Derive the RSS (sum of squares for the residuals). 2.1.3 Hence, calculate ô 2.2 2.3 (6) (3) Further, she replicates her study and collects data from 122 students from a rival university. She derives the residuals followed by computing skewness (S) equals -1.25 and kurtosis (K) equals 8.25 for the rival university data. Conduct the Jacque-Bera test of normality at a = 0.05. (5) Upon tasked with deriving estimates of ẞ1, B2, 82 and the standard errors (SE) of ẞ1 and B₂ for the replicated data.…
If you were put in charge of ensuring that the mining industry in canada becomes more sustainable over the course of the next decade (2025-2035), how would you approach this? Come up with (at least) one resolution for each of the 4 major types of conflict: social, environmental, economic, and political

Chapter 4 Solutions

Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics:
Economics
ISBN:9781285859460
Author:BOYES, William
Publisher:Cengage Learning