Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 31, Problem 2DQ
To determine
The impact of velocity.
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Students have asked these similar questions
How are M1 and M2 equations related to reserve market (interbank)? Let’s say, central bank applies “passive policy”
thru “rule”. How does this situation affect this relationship?
Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?(A) M1 Increases, M2 decreases(B) M1 Increases, M2 no change(C) M1 Decreases, M2 no change(D) M1 no change, M2 decreases(E) M1 no change, M2 no change
Suppose the liquidity preference function is given by:
L(i.Y) =-1,000/
Calculate velocity for each period, using the money demand equation:
V=
LY)
along with the following table of values. (Round your responses to two decimal places)
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Y (in billions)
12,100
0.04
12,400
12,500
12,900
12,350
0.03
13,200
0.04
13,300
0.08
Interest rate
0.08
0.05
0.06
Velocity
5.17
5.06
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Similar questions
- What is the most effective monetary policy tool that the Federal Reserve uses? a) Open market operations b) Reserve requirements c) Discount rate d) Federal funds ratearrow_forwardSuppose the liquidity preference function is given by: Y L(i,Y) = 70 - 1,000i 10 Calculate velocity for each period, using the money demand equation: Y V= L(i,Y) along with the following table of values. (Round your responses to two decimal places.) Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Y (in billions) 12,200 12,450 12,900 13,000 13,300 12,500 0.06 12,500 Interest rate 0.05 0.06 0.03 0.07 0.03 0.08 Velocityarrow_forwardWhat direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?arrow_forward
- Which one of these is not one of the three main policy tools the Federal Reserve uses to conduct monetary policy? Required Reserve Ratios Federal Reserve requirements Discount Rate Open Market Operationsarrow_forwardIf reserves are superabundant, how would the federal funds rate change (increase or decrease) if the Fed: (a) decreases the interest rate it pays on banks' reserves (b) increases the offering rate on overnight reverse repurchase agreementsarrow_forwardIf the Fed shifts to a more restrictive monetary policy, and it utilizes the open market operations tool, describe what will happen to each of the following:arrow_forward
- Suppose an economy has a price index at 15, real GDP of $11.09 trillion, and a money supply (M2) of $23.67 trillion. What is the M2 velocity of money for this economy? Round this to two digits after the decimal.arrow_forwardShow graphically the effect on the money market of expansionary monetary policy. explain the overall effect of this policy on the economy.arrow_forwardList three main tools available to the Fed to change money supply in the economy. If the Fed wanted to decrease money supply in the economy, would the Fed buy or sell securities in the open market?arrow_forward
- Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?arrow_forwardAssume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately?arrow_forward
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