Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 25, Problem 6.2P
To determine
To discuss the difference in the impact on money supply due to using a fiscal surplus to buy back bonds and using open market operations to buy them.
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Students have asked these similar questions
The U.S. money supply (M1) at the beginning of 2015 was $2,683.3 billion broken down as follows: $1,165.7 billion in currency, $3.5 billion in traveler's checks, and
$1,514.1 billion in checking deposits.
Suppose the Fed decided to increase the money supply by decreasing the reserve requirement from 11 percent to 10 percent. Assume all banks were initially
loaned up (had no excess reserves) and the quantity of currency and traveler's checks held outside of banks did not change.
How large a change in the money supply would have resulted from the change in the reserve requirement?
The money supply would change by $ billion. (Round your response to two decimal places and include a minus sign if necessary.)
2. The theory of liquidity preference and the downward-slopingaggregate demand curve
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes
the quantity of money supplied.
Suppose the price level decreases from 90 to 75.
Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.
12
Money Supply
10
Money Demand
Money Supply
MD1
2
MD2
10
20
30
40
50
60
MONEY (Billions of dollars)
INTEREST RATE (Percent)
A problem that the Fed faces when it attempts to control the money supply is that
the Fed can only control excess reserves but not total reserves.
the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
the Fed does not control the amount of money that households choose to hold as deposits in banks.
Chapter 25 Solutions
Principles of Economics (12th Edition)
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