Which of the following best explains why a large increase in the supply of bank reserves can have no effect on the equilibrium effective federal funds rate? The demand for bank reserves becomes perfectly elastic at the interest rate the Fed pays on reserves. The supply curve for bank reserves is upward sloping relative to the federal funds rate, The quantity of reserves demanded by banks is negatively related to the federal funds rate. The supply of bank reserves become perfectly elastic at the primary discount rate set by the Fed.
Q: Refer to the diagram above. The shift of the aggregate demand curve from AD1 to AD2 might result…
A: The aggregate demand refers to the curve that represents the total quantity of all goods and…
Q: While a television news reporter might state that “Today the Fed lowered the federal funds rate from…
A: The Federal Open Market Committee sets the target interest rate, which is referred to as the federal…
Q: When the Fed lowers the federal funds rate, which of the following economic variables responds most…
A: Note:- Since we can only answer one question at a time, we'll answer the first one. Please repost…
Q: If the unemployment rate is falling from 4 to 3%, while the inflation rate is increasing from 2% to…
A: Monetary Policy is the process of implementing certain policies that influence the money supply in…
Q: Assuming that the aggregate supply in a given economy increases by 7.5 percent, whereas the velocity…
A: Given Information The Percentage of money is constant which means that the percentage change in the…
Q: For the January 2020 Press Release, answer the following question. A. For Column 8, complete the…
A: In column 8 we have Fed Funds Target Rate. As per the given press release of January 2020 by the…
Q: The reserve-requirement ratio Multiple Choice is raised for banks that frequently use the Federal…
A: At the marketplace, required reserve ratio refers to the percentage of total deposits that a bank…
Q: Q7.On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary…
A: The 6 member MPC meeting was held from 2nd to 4th December 2020 headed by RBI Governer Shaktikant…
Q: the long-run federal funds target is also zero. If the inflation rate is 4 percent and the output…
A: Federal funds rate = long run target+ 1.5(inflation rate – inflation target) + 0.5(output gap)…
Q: Assume the economy is currently in Recession and the Federal Reserve has chosen to use the required…
A: When the economy is in recession it requires expansionary monetary or fiscal polices or both.
Q: Which one of the following statements best summarizes the Federal Reserve’s monetary policy over the…
A: The FR {"Federal Reserve"} is the entity in charge of the country's monetary policies and the…
Q: Question 1 Which of the following Fed actions will increase bank lending? Select one or…
A: Discount rate is the rate at which the Fed lends short term loans to other banks.
Q: Explain whether each of the following events increases or decreases the money supply. The Fed buys…
A: Money supply refers to the currency amount held with public and the kept as deposit with the…
Q: There are four (4) main transmission channels that can be used as monetary policy to target the…
A: As a consequence of monetary policy decisions, the monetary transmission mechanism is the procedure…
Q: Which of the following best describes the uncertian consequences of the policy that the FED plans to…
A: Answer: There occurs a trade-off between inflation and unemployment in the short-run. If the fed…
Q: If the Fed sells Treasury bills, this will shift the Group of answer choices money supply curve to…
A: The decision making, and the policy making authorities in an economy tend to focus on bringing…
Q: Use an aggregate supply and demand diagram to dem
A: Recession refers to a significant decline in the general level of economic activity being in a…
Q: The Fed increases the discount rate. As a result, ceteris paribus, the equilibrium interest rate…
A: A discount rate is a tool used by the Fed as a part of monetary policy. When the discount rate is…
Q: Which of the following can be categorized under fiscal policy? a. Decrease in money supply b.…
A: Fiscal policy - The policy under which tax policies and government spendings are used to make an…
Q: Assume that the Fed is committed to price level stability. Income grows at 0.05, the base grows at…
A: In financial aspects, a cash multiplier is one of different firmly related proportions of business…
Q: With respect to Open Market Operations, if the Fed buys bonds from the marketplace, then they are…
A: Open market operations refer to purchase and sale of bonds by Fed.
Q: Which of the following statements is true of the federal funds market? No banks are refused loans…
A: In the United States, different types of interest rates are used to make economic exchanges such as…
Q: From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and…
A: Lower growth in demand compared to supply will lead to a dip in prices. This is a situation of…
Q: Suppose the Federal Reserve (the US central bank) increases the money stock. Create a graph that…
A: The federal reserve is the central bank of the US and it is responsible for maintaining the…
Q: Federal Reserve & Open Market Operations If the Fed shifts to a more restrictive monetary policy,…
A: The Federal Reserve is the Central authority of United States to make open market purchase or sale…
Q: The liquidity trap occurs when the demand for money: Group of answer choices means that an increase…
A: Answer: Correct option: c (is perfectly interest elastic) Explanation: The liquidity trap refers to…
Q: The Tools available when using fiscal policy are Interest Rates The Federal Reserve Open Market…
A: Fiscal policy is the policy enacted by the government. It includes managing taxation and government…
Q: Which of the following statements is most accurate about the Fed's use of the federal funds rate…
A: Macroeconomics is a subpart of economics that is used to understand the production, allocation and…
Q: In the Keynesian theory of liquidity preference money supply is related to interest rates…
A: Keynesian theory of liquidity preferences: According to Keynes, the money demand and money supply…
Q: The two typical liabilities on the Fed balance sheet comprise which of the following
A: The Federal Reserve System is the national bank of the United States and is answerable for the…
Q: To increase the money supply, the Fed can Group of answer choices buy government bonds or decrease…
A: Expansionary monetary policy:- This is the policy that is used by the central bank to increase the…
Q: Which of the following about government deficits is true? it is a flow variable it is…
A: A deficiency happens when costs surpass income and demonstrate the monetary strength of a rural .…
Q: The federal funds rate should never go above which of the following: the risk-free rate the interest…
A: Discount rate: It is the interest rate at which banks borrow from the Federal Reserve. Federal fuds…
Q: When real GDP is greater than potential output, it is most likely that the Fed will engage in…
A: There are two types of output: 1. Real output/GDP 2. Potential output/GDP
Q: The discount rate is the interest rate the Fed charges on loans of reserves to banks. The federal…
A: The federal reserve system is the central bank of the country who manages and maintain the financial…
Q: According to your graph, the equilibrium value of money is (0.25, 0.50, 0.75, 1.00) therefore the…
A: The table can be filled as follows.
Q: if the reserve requirement were so low that no bank felt it was a constaint, then the…
A: Reserve requirement refers to the proportion of the total deposits that the commercial banks have to…
Q: When government spending results in higher interest rates due to rising debt, what happens to…
A: The Gross Domestic Product (GDP) refers to the market value of all the final goods and services…
Q: The liquidity trap occurs when the demand for money Group of answer choices increases when interest…
A: Money Demand: - The demand for money is the individual's desire to keep their assets in the form of…
Q: Assume the economy is currently in Recession and the Federal Reserve has chosen to use the required…
A: When faced with a recession, the Federal Reserve will lower the required reserve ratio as lowering…
Q: Which of the following best describes the cause-effect chain of an expansionary monetary policy?
A: Monetary Policy(MP) is a policy adopted by the Central Bank or the government of the company to…
Q: The economy is “overheated” and inflation is running high. Should Fed follow an expansionary or…
A: Monetary policies are actions undertaken by a central bank to control money supply and to achieve a…
Q: Which of the following policies did the Fed follow after 2014? To unwind expansionary policy…
A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…
Q: What is the likely outcome if the Fed seeks to maintain a federal funds rate of 0% even when the…
A: The Fed or the central bank of the nation use various monetary tools for the proper functioning of…
Q: 133.) Assume prices and wages are flexible. If the Federal reserve reduces the reserve requirement…
A: The changes in the reserve ratio requirement are part of monetary policy of the central bank to…
Q: Changing the reserve requirement is such a powerful instrument of monetary policy that it is the…
A: 1. True - Reserve requirement is such a powerful instrument of monetary policy that it is the most…
Q: Which statement best describes the Federal Reserve's current level of transparency to the American…
A: The Federal Reserve Transparency Act of 2009, made the Federal Reserve accountable to both the…
Step by step
Solved in 2 steps
- Suppose that the current money market equilibrium features an interest rate of 5 percent anda quantity of $2 trillion. If the Fed raises the discount rate, which of the following is mostlikely to be the new money market equilibrium? Group of answer choices An interest rate of 4 percent and a quantity of $2.5 trillion. An interest rate of 6 percent and a quantity of $1.5 trillion. An interest rate of 3 percent and a quantity of $3 trillion. An interest rate of 5 percent and a quantity of $2 trillioIf the unemployment rate is falling from 4 to 3%, while the inflation rate is increasing from 2% to 4%, the Fed will most likely: decrease the inflation rate by setting a price ceiling. increase the money supply. O increase the target range for the federal funds rate. not change much. decrease the target range for the federal funds rate.Match each definition of money demand in the following table with its key term. Definition The stock of money people hold to pay unpredictable expenses The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets The stock of money people hold to pay everyday, predictable expenses The demand for money curve graphs the quantity of money on the overall demand for money curve, you must take into account table. Term axis and the interest rate on the axis. To find the of the specific money demands you just identified in the previous True or False: The downward-sloping portion of the money demand curve is driven by the speculative demand for money. True False
- Which statement is true? O An increase in the tax on interest rate income increases the supply of loanable funds and increases the equilibrium investment. O A recessionary gap means that the level of real GDP at the short-run macroeconomic equilibrium is larger than the full-employment GDP. Monetary policy is preferred to fiscal policy because the use of fiscal policy is limited due to the time lags associated with a fiscal policy that may cause the policy to take effect too late to solve the problem it was supposed to address. O If the crowding out effect existed, the effects of fiscal policy could be larger. Expansionary monetary policy occurs when____ O a central bank acts to decrease the money supply in an effort to stimulate the economy. O Congress and the president decrease taxes in an effort to stimulate the economy. • a central bank acts to increase the money supply in an effort to stimulate the economy. O A central bank acts to increase government spending in an effort to…4. Here is the expression for money market equilibrium that we discussed in class: M = P· L(Y,r +n°) In growth rates, this expression is written: %AP %AM – %AL(Y,r + n°) a) Suppose the elasticity of money demand to a change in output is 1. If the central bank causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the inflation rate be? b) Repeat question a, in this case with the money supply growing at a 9% rate. c) In general, what is the relationship between money growth and inflation? d) What is monetary neutrality and how does it affect your answers to part c?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…
- Assume that the following data characterize the hypothetical economy of Trance: money supply $200 billion; quantity of money demanded for transactions $150 billion; quantity of money demanded as an asset $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. Instructions: Enter your answers as whole numbers. a. What is the equilibrium interest rate in Trance? b. At the equilibrium interest rate, what are the quantity of money supplied, the total quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance? billion. Quantity of money supplied billion. Quantity of money demanded billion. Amount of money demanded for transactions billion. Amount of money demanded as an asset1.25 MS, 1.00 Money Demand 0.75 MS2 0.50 0.25 3 4 QUANTITY OF MONEY (Billions of dollars) , therefore the equilibrium price level is According to your graph, the equilibrium value of money is Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion. In order to increase the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply ( MS2 ). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This expansion in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will VALUE OF MONEYSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₂). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. ? PRICE LEVEL 116 114 CATE 112 110 108 106 104 102 100 100 12 A AD₁ 9 10 102 104 106 108 110 OUTPUT (Billions of dollars) 112 Money Supply N 114 116 The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 billion. þ † Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following…
- Based on the diagram, if potential output equals 5,000 and the real interest rate is 5 percent, then there is gap and the Fed must the real interest rate so that output will equal potential output. PAE Y= PAE Expenditure Line (r = 1%) Expenditure Line (r = 3%) Expenditure Line (r = 5%) 45° 3,000 5,000 7,000 Output Y O a recessionary; reduce O no output; not change O a recessionary; raise O an expansionary; raiseWhich of the following would cause the Fed to raise interest rates even though the rate of inflation is equal to the target rate? An increase in household wealth O An increase in potential GDP O An increase in imports O A reduction in government purchases O A reduction in business confidenceQUESTION 12 The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. O True O False QUESTION 13 What happened to the discount rate in January 2003 and why? Read this article from the Federal Reserve to find the answer. The discount rate moved below the fed funds rate because fewer banks wanted to borrow from the Fed anymore The discouunt rate became equal to the fed funds rate because the bank lending programs were merged into one The discount rate moved above the fed funds rate so any sound financial institution could borrow from the Fed and to eliminate the perception banks were being subsidized O All of the above None of the above QUESTION 14 What is the most important change in the fed funds rate since the Financial Crisis began in 2007? O it is much lower and has been essentially zero percent (0%) most of the time O It has become much more variable (ups and downs) O It no longer increases shortly before a recession (gray shaded…