MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 16, Problem 7SQ
To determine
The cause for a rightward shift in the equilibrium in the economy.
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28) When the Fed raises the federal funds rate
A) the value of the dollar rises on the foreign exchange market.
B) consumption increases.
C) net exports increase.
D) the value of the dollar falls on the foreign exchange market.
29) An inflation rate targeting rule
A) reduces uncertainty about monetary policy.
B) means that the inflation rate must exceed 5 percent in order for the rule to be effective.
C) has been adopted the by the Fed in response to the financial crisis of 2008-2009.
D) will not work if the Fed continues to sue open market operations.
Assume that the reserve requirement is 16 percent. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Federal Reserve decides that it wants to contract the money supply by $75 million using open-market operations.
In order to accomplish its goal, the Fed needs to --(insert buy or sell)-- $______ million worth of bonds.
34)
A decision by the Fed to raise the discount rate (rate at which Fed lends to banks) will:
a) increase output by raising the money supply and lowering the interest rate
b) decrease output by lowering the money supply and raising interest rates
c) decrease output by raising the money supply and raising interest rates
d) increase output by lowering the money supply and raising interest rates
Chapter 16 Solutions
MACROECONOMICS FOR TODAY
Ch. 16.3 - Prob. 1.1YTECh. 16.3 - Prob. 2.1YTECh. 16.3 - Prob. 2.2YTECh. 16.A - Prob. 1SQPCh. 16.A - Prob. 2SQPCh. 16.A - Prob. 3SQPCh. 16.A - Prob. 4SQPCh. 16.A - Prob. 1SQCh. 16.A - Prob. 2SQCh. 16.A - Prob. 3SQ
Ch. 16.A - Prob. 4SQCh. 16.A - Prob. 5SQCh. 16.A - Prob. 6SQCh. 16.A - Prob. 7SQCh. 16.A - Prob. 8SQCh. 16.A - Prob. 9SQCh. 16.A - Prob. 10SQCh. 16.A - Prob. 11SQCh. 16.A - Prob. 12SQCh. 16.A - Prob. 13SQCh. 16.A - Prob. 14SQCh. 16.A - Prob. 15SQCh. 16 - Prob. 1SQPCh. 16 - Prob. 2SQPCh. 16 - Prob. 3SQPCh. 16 - Prob. 4SQPCh. 16 - Prob. 5SQPCh. 16 - Prob. 6SQPCh. 16 - Prob. 7SQPCh. 16 - Prob. 8SQPCh. 16 - Prob. 9SQPCh. 16 - Prob. 10SQPCh. 16 - Prob. 11SQPCh. 16 - Prob. 12SQPCh. 16 - Prob. 1SQCh. 16 - Prob. 2SQCh. 16 - Prob. 3SQCh. 16 - Prob. 4SQCh. 16 - Prob. 5SQCh. 16 - Prob. 6SQCh. 16 - Prob. 7SQCh. 16 - Prob. 8SQCh. 16 - Prob. 9SQCh. 16 - Prob. 10SQCh. 16 - Prob. 11SQCh. 16 - Prob. 12SQCh. 16 - Prob. 13SQCh. 16 - Prob. 14SQCh. 16 - Prob. 15SQCh. 16 - Prob. 16SQCh. 16 - Prob. 17SQCh. 16 - Prob. 18SQCh. 16 - Prob. 19SQCh. 16 - Prob. 20SQ
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Similar questions
- If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level. buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.arrow_forwardIf the Fed wishes to increase the money supply, it can: Question 11 options: buy bonds from a bank, giving the bank cash in return, which it can then lend out. sell a bond to bank, and take the money it receives in exchange out of circulation in the economy. buy a bond from a bank, requiring the bank to hold the money it receives as excess reserves. sell a bond to a bank, and take the money it receives and lend it out to someone else.arrow_forwardSuppose banks decide to hold more excess reserves relative to deposits while the public retained the same currency to deposit ratio. This causes the money supply to Question 6 options: fall. To reduce the impact of this the Fed could sell Treasury bonds. fall. To reduce the impact of this the Fed could buy Treasury bonds. rise. To reduce the impact of this the Fed could sell Treasury bonds. rise. To reduce the impact of this the Fed could buy Treasury bonds.arrow_forward
- The federal funds rate is: A) set by Congress. B) determined in the money market by the supply of and demand for money. C) determined in the real market by the aggregate supply and aggregate demand curves. D) the interest rate that banks pay when they borrow directly from the Fed.arrow_forwardWhen economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to? 1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy 2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy 3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations 4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount ratearrow_forwardQuestion 2 Suppose the federal funds rate is currently at its target level. Then suppose the demand for federal funds increases. Which one of the following statements is TRUE? Question 2 options: If the Fed does nothing, the federal funds rate would decrease Because the Fed sets the federal funds rate by fiat, the rate would remain unchanged without any further intervention The Fed would likely respond by increasing the supply of federal funds to keep the federal funds rate at its target level The Fed would likely reduce the demand for federal funds back to its original level by decreasing the reserve requirements for banks The Fed would likely respond by mandating a decrease in the federal funds rate to accommodate the change in demandarrow_forward
- The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. 5.0 Money Demand New MS Curve ++ New Equilibrium 1:07 PM 4/29/2022 INTEREST RATE (Percent) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 L L' O 0arrow_forward0.3: In an economic environment where the initial policy interest rate (ip) and the equilibrium interest rate (ie) are equal in the reserve market, the central bank plans to lower the required reserve ratios in order to recover from the economic recession. If this monetary policy measure is implemented, a. How a divergence occurs between the policy interest rate and the equilibrium interest rate? b. What kind of measure should the central bank take to keep the equilibrium and the policy interest rates equal? Explain by drawing the related figure(s).arrow_forwardAssume that the Fed follows an unhinged intervention by selling $500 billion worth of GBP against USD in the foreign exchange market. By using the supply and demand diagram of USD show the results of this policy on the price of USD expressed in GPB (GBP/USD).arrow_forward
- Suppose that the money supply increases by 20 percent. If there is no inflation, what does the quantity theory of money tell us must happen to real GDP? It must increase by more than 20 percent. It must increase by less than 20 percent. It must increase by exactly 20 percent. None of the above are correct. Which of the following statements is true of the federal funds market? No banks are refused loans in the federal funds market. In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks. On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis, you plot each year's values for the United States as…arrow_forwardThe major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? selling government securities and raising the discount rate selling government securities and raising the reserve ratio .buying government securities and raising the discount rate buying government securities and lowering the reserve ratioarrow_forward
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