Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 14, Problem 7CQ
(a)
To determine
Identify the action of the Fed’s influence on the reserves available to banks.
(b)
To determine
Identify the action of the Fed that influences the real interest rate.
(c)
To determine
Identify the action of the Fed’s influence on household spending on consumer durables.
(d)
To determine
Identify the action of Fed’s influence on the exchange rate value of the dollar.
(e)
To determine
Identify the action of the Fed’s influence on the net exports.
(f)
To determine
Identify the action of Fed’s influence on the prices of stocks and real assets.
(g)
To determine
Identify the action of Fed’s influence on the real GDP.
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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
Due to the huge inflow of money to Spain, price levels have begun to increase. The government worries that this huge money supply will be an economic problem soon. Which of these monetary policies will work to solve this problem?
a.
Increase cash reserve ratio, increase interest rates and buy government bonds
b.
Decrease cash reserve ratio, decrease interest rates and sell government bonds
c.
Decrease cash reserve ratio, increase interest rates and sell government bonds
d.
Increase cash reserve ratio, increase interest rates and sell government bonds
What will happen to Vladimir Putin after the war with Ukraine? What kind of consequences will he and Russia face? Is Russia running out of money?
Chapter 14 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- If the Fed shifts to more restrictive monetary policy, it typically sells bonds. How will this action influence the following? a. the reserves available rates b.real interest rates c. Household spending on consumer durables d. the exchange rate value of the dollar e. net exports f. the price of stocks & real assets ( like apartments or office buildings) g. real GDParrow_forwardSuppose the central bank in the nation of Zook attempts to pay off its national debt by printing large amounts of currency. The large increase in the money supply causes the price level to rise by 1,300 percent. What do you expect will happen to the value of Zook's currency? Instructions: Round your answer to the nearest whole number. The value of Zook's currency will (Click to select) by percent.arrow_forwardExplain how does monetary policy affect the economy and business activities?arrow_forward
- How do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.arrow_forwardWhich of the following must remain stable if money is to successfully function as a store of value? a. The exchange rate b. The net of interest c. Prices d. Employmentarrow_forwardEconomyRead the following premise carefully and answer the questions specifically and in detail. "Faced with instability in economic growth due to a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks which, in turn, will affect the amount of money available in the economy. economy In addition to open market operation, the Fed has other tools available to promote the growth, sustainment and economic stability of a country.These tools have been used historically; "A good example was the mortgage debt crisis of 2008." 1. Explain in detail monetary policy, its function and its effects on short- and long-term economic fluctuations. Use the aggregate demand and supply model presented in the course. 2. Explain each of the tools that exist in expansionary monetary policy and contractionary monetary policy.arrow_forward
- EconomyRead the following premise carefully and answer the questions specifically and in detail. "Faced with instability in economic growth due to a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks which, in turn, will affect the amount of money available in the economy. economy In addition to open market operation, the Fed has other tools available to promote the growth, sustainment and economic stability of a country.These tools have been used historically; "A good example was the mortgage debt crisis of 2008." A. Express in detail the effects of monetary policy, expansionary and contractionary, on income and the price level. B. Using the premise presented as a basis, argue about the intervention of monetary policy as instruments to promote growth, sustainability and economic stability of a country. (Gives an example in detail.)arrow_forwardAssets Liabilities Reserves: $30,000 Demand Deposits: $100,000 Loans: $70,000 Equity (net worth): $2,000 Property: $2,000 Assume the reserve requirement ratio is 20%. A. Calculate the dollar value of reserves that the Bank of America is required to hold. Show your work. B. Given the current reserves, calculate the maximum value of additional loans the Bank of America can make. Show your work. C. Assume that Elliot raises $5,000 in cash from a yard sale and deposits the cash in his checking account at the Bank of America. By how much does the money supply immediately change as a result of Elliot's deposit? D. Calculate the maximum change in demand deposits in the banking system as a whole resulting from Elliot's deposit. Show your work. E. If the Bank of America is not meeting the reserve requirement, what action can it take to meet the reserve requirement without calling in loans or selling property?arrow_forwardWhat does liquidity mean? What are some less than 100% liquid monetary instruments?arrow_forward
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