One tension that occurs in central banking in a democracy is O Central bankers only think on a short term basis. O Politicians usually know what is best for the economy in the long run, but central bankers have no incentive to listen to them. O There is nothing that central bankers can do to boost the economy in the short run. O Politicians who are elected for short terms are often more willing to accept (and sometimes encourage) a looser monetary policy in order to boost the economy and increase their chances of being re-elected, despite the negative long-term consequences for the economy.

One tension that occurs in central banking in a democracy is O Central bankers only think on a short term basis. O Politicians usually know what is best for the economy in the long run, but central bankers have no incentive to listen to them. O There is nothing that central bankers can do to boost the economy in the short run. O Politicians who are elected for short terms are often more willing to accept (and sometimes encourage) a looser monetary policy in order to boost the economy and increase their chances of being re-elected, despite the negative long-term consequences for the economy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Over the last two years, the unemployment rate in Westerlight has risen from 4% to 8%, while GDP growth has been 1.5%. Milo, a citizen of Westerlight, currently doesn’t have a job and although he is actively searching, has been unable to find one.The Federal Reserve notices this change in the economy and decide to take steps to correct it. They can use their 4 tools in the following ways:a. What will the Federal Reserve do to open market operations? b. What will the Federal Reserve do to the reserve requirement? c. What will the Federal Reserve do to the discount rate? d. What will the Federal Reserve do to the interest on reserves? e. What impact will this have on loans from banks?
2.18 Privatizing a state enterprise or establishment that is losing money, helps to improve the Treasury's fiscal deficit in several ways. True D False O Defend your answer: 2.19 "Ongoing inflation is always and everywhere a monetary phenomenon." To eliminate inflation, Peru drastically reduced the rate of growth in its money supply. True D False O Defend your answer: 2.20. Suppose you wanted to dollarize Venezuela today. What steps would you take?
What are some other sepcific times the FED has used this monetary policy on the economy?
Which of these statements are true? The discount rate is normally equal to the federal funds rate. The federal funds ratre is normall higher than the discount rate. The Federal Funds rate is the rate that banks are charged when they borrow from the Fed. O The discount rate is normally higher than the federal funds rate.
The Board of Governors of the Federal Reserve is in charge of setting and overseeing monetary policy and is headed by the ___________(PRESIDENT OF THE BANK OF NEW YORK / CHAIRMAN OF THE FEDERAL RESERVE / SPEAKER OF THE HOUSE / PRESIDENT OF FEDERAL OP[EN MARKET COMMITTEE). . Monetary policy is supposed to be____________(COORDINATED WITH/ INDEPENDENT OF) Congress and the president. This goal is hindered by the fact that the chairman is_______________(APPOINTED BY THE PRESIDENT / PUBLICLY ELECTED). Because Congress initially intended to create a decentralized banking system, there are also smaller branches of the Federal Reserve known as district banks. All presidents of the district banks take turns serving as members of the Federal Open Market Committee (FOMC) except for the president of the Federal Reserve Bank of __________(SAN FRANCISCO, NEW YORK, WASHINGTON DC), who is a permanent member. NOTE- This is one question but divided into the parts please answer with an…
“The Fed can perfectly control the amount of the monetary base, but has less control over the compositionof the monetary base.” Is this statement true, false, oruncertain? Explain
The discount rate is the interest rate that Select one: a. banks charge one another for loans. b. the Fed charges banks for loans. O c. the Fed charges Congress for loans. d. banks charge the Fed for loans.
Select ALL of the following that are ways to do easy (expansionary) policy. O Raise the cost of borrowing. O Sell bonds to banks. Increase government purchases (spending). Increase bank excess reserves. Raise taxes. O Lower interest rates.
In regard to monetary policies, nonactivists have various proposals. True or False: Some nonactivists believe in the Taylor rule, which suggests that the annual money-supply growth rate should be based on the growth rates of velocity and Real GDP to ensure that the price level does not fluctuate. O False O True Which of the following statements best explains the difference between the Taylor rule and the two other nonactivist rules (the constant-money growth rate rule and the predetermined-money growth rate rule)? O The Taylor rule does not take into account the stability of prices. O The Taylor rule suggests how much the money supply should grow. O The Taylor rule does not take into account the current state of the economy. O The Taylor rule is not a derivation of the equation of exchange.
Q8
But even though the CBs was in existences at the time of the Global Crisis of 2008/9, they could not have prevented that crisis. In fact they looked completely unprepared for that even. Question Do we really need a Central Bank in our Country? If they are so important to the fiscal and monetary objective of any country, why have their roles as a financial watchdog as it relates to several economic crisis, open more suspicion. In fact they seem most of the times totally unprepared to deal with the pending economic fallout? Many will argue as well that the CB seem to be more reactive rather than proactive. Critically discuss.
Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…