Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 14, Problem 1AP
To determine
To Evaluate: Effects on different economic variable under different condition using IS-LM model
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Homework (Ch 34)
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 2.5% and a quantity of money equal to $0.4 trillion, designated on the
graph by the grey star symbol.
INTEREST RATE (Percent)
4.5
4.0
3.5
3.0
2.5
2.0
-
1.5 +
1.0 +
0.5
0
Money Demand
0.1
0.2
0.3
0.4
Money Supply
0.5
0.6
0.7
0.8
14
New MS Curve
+
New Equilibrium
?
Q Search this course
Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply.
The Fed cannot prevent banks from lending out required reserves.
The Fed cannot control whether and to what extent banks hold excess reserves.
The Fed cannot control the amount of money that households choose to hold as currency.
Suppose you win on a scratch-off lottery ticket and you decide to put all of your $3,500 winnings in the bank. The reserve
requirement is 5%.
What is the maximum possible increase in the money supply as a result of your bank deposit?
maximum increase: $
Which events could cause the increase in the money supply to be less than its potential?
Banks choose to loan out all excess reserves.
Some loan recipients choose to hold some cash instead of depositing all of it in banks.
Banks decide to keep some excess reserves on hand.
All money loaned out is deposited back into the banking system.
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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.)arrow_forwarda) Explain whether each of the following events increases or decreases the money supply. The State Bank of Pakistan sells bonds in open-market operations. The State Bank of Pakistan increases the reserve requirement. The State Bank of Pakistan reduces the interest rate it pays on reserves. MCB Bank repays a loan it had previously taken from the State Bank of Pakistan. After a rash of pickpocketing, people decide to hold less currency. Fearful of bank runs, bankers decide to hold more excess reserves. kindly solve 4, 5, 6arrow_forwardChallenge Problem. The chapter mentions that an open market operation by the Fed can increase or decrease the quantity of deposits in banks and therefore the money supply. The change in the money supply from a Fed open market operation is given by the following equation: Change in money supply = Change in reserves x1/ (RR+ ER) where RR = the percentage of deposits that banks are required to keep as reserves ER = the percentage of deposits that banks voluntarily hold as excess reserves 1/ (RR+ ER) = the "money multiplier" Suppose the Fed decides to sell $16 billion in Treasury bonds. Assume that the reserve requirement is 10 percent, banks hold 3 percent in excess reserves, and the public holds no cash. This action by the Fed causes the money supply to by S billion. (Round your response to two decimal places.)arrow_forward
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