9. If the demand for reserves did not fluctuate, the Fed could pursue both a reserves target and an interest-rate target at the same time.” Is this statement true, false, or uncertain? Explain.
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9. If the demand for reserves did not fluctuate, the Fed could pursue both a reserves
target and an interest-rate target at the same time.” Is this statement true, false, or
uncertain? Explain.
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- “If the demand for reserves did not fluctuate, the Fedcould pursue both a reserves target and an interest-ratetarget at the same time.” Is this statement true, false, oruncertain? Explain.According to the portfolio theories of money demand, whatare the four factors that determine money demand? Whatchanges in these factors can increase the demand for money?A central bank carries out a contractionary open market operation *Another way of achieving the same thing as in an open market operation is to changethe banks’ refinancing rate. Explain carefully in which direction this rate would have tochange in order to achieve the same effect as the aforementioned contractionary openmarket operation, and how the banks’ reaction to this change brings about this effect
- What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change4. The cbvious objective of monetary policy should be to attain equilibrium between saving and investment at the point of full cmployment. Explain.Assume the Federal Reserve has a federal funds rate target (ffr*) at 1.5%. If there is anunexpected decrease in the demand for reserves and the Federal Reserve wants to maintainthe target rate, how does it affect the money supply? Explain with the aid of a supply anddemand for reserves diagram.
- Q. Explain why a rise in the money supply will be unlikely to affect the real interest rate in the long run.Question 4. Suppose that the bank of Canada uses money to buy bonds in financial markets during a recession. a. Use the theory of liquidity preference to graphically illustrate the impact of this purchase of bonds in open markets by the bank of Canada on the equilibrium interest rate in the market for real money balances. Be sure to label: į. the axes; ii. the curves; i. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values. Explain what happens to the equilibrium interest rate. b. How would this policy change affect nominal interest rates in the short run and the long run? Explain your answer using macroeconomic models that we studied in the past semester.8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. If the Fed injects a huge amount of money into the markets, inflation is expected to decline, and long-term interest rates are expected to rise. During recessions, short-term interest rates decline more sharply than long-term interest rates. When the economy is weakening, the Fed is likely to decrease short-term interest rates. True False O O O O O O
- 8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply ollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth $ of U.S. government…In today's ample reserves regime, does the Fed set a target level or range for the federal funds rate, and how is it achieved? The Fed achieves its federal funds rate target _______. A. level by setting the discount rate and the interest on reserves rate B. range because whatever the supply of reserves, the rate is between the discount rate and the interest on reserves rate C. level by conducting daily open market operations D. range by setting the supply of reserves equal to the quantity of reserves demanded at the range midpoint thanks!
