The effect on GDP , when there is an increase in bank reserves by $ 5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $ 1 billion

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Answer 1

Question

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

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Students have asked these similar questions

Suppose the Federal Reserve conducts an open market purchase from a bank for $300 million. Assuming the required reserve ratio is 10%, what would be the effect on the money supply in each of the following situations? If there are many banks, all of which make loans for the full amount of their excess reserves, the money supply will increase by $ million. (Enter your response as a whole number.)

The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed’s primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves. A decrease in the interest rate on reserves tends to (decrease or increase) the reserve ratio, (decreases or increases) the money multiplier, and (decrease or increase) the money supply.

The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open-market operations to (increase/decrease) the (demand for/supply for) money by (buying bonds from/selling bonds to) the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate…

Answer 2

Question

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

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Answer 3

Question

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

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Answer 4

Question

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

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Answer 5

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

Answer 6

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

Answer 7

Chapter 13, Problem 5TY

a)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

Answer 8

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

Answer 9

b)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

Answer 10

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

Answer 11

c)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

Answer 12

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

Answer 13

d)

To determine

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 13 - Prob. 1TY Ch. 13 - Prob. 2TY Ch. 13 - Prob. 3TY Ch. 13 - Prob. 4TY Ch. 13 - Prob. 5TY Ch. 13 - Prob. 6TY Ch. 13 - Prob. 7TY Ch. 13 - Prob. 8TY Ch. 13 - Prob. 1DQ Ch. 13 - Prob. 2DQ

The effect on GDP , when there is an increase in bank reserves by $ 5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $ 1 billion

Solution Summary: The author explains the effect of an increase in bank reserves on GDP, assuming a reduction in rate of interest by 0.5percentage.

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that there is a reduction in rate of interest by 0.5 percentage point, with an increase in each $1 billion

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that $30 billion worth of new investments are stimulated, for decline in interest rates of each 1 percentage point .

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the expenditure multiplier is two.

To Explain: The effect on GDP, when there is an increase in bank reserves by $5 billion , assuming that the prices does not increase with an increase in demand.

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