Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter D, Problem 2QP
To determine
The relation between the
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The governor of State bank of Pakistan announces to increase the supply of money. How they are able to do so? Using a supply and demand analysis, show what effect this action has on interest rates of bonds. What happens when there is a decrease in money supply by the federal bank?
Explain how each of the following developments affects money supply, money demand, and interest rates. Illustrated with a chart:a) Those responsible for buying and selling bonds of the Fed buy bonds through open market operations?b) Did the Fed reduce the reserve requirement ratio for commercial banks?c) Households keep more money for holiday shopping?
If the Fed wants to increase the money supply by $100 million does it have to buy more than $100 million of bonds, less than $100 million of bonds or exactly $100 million of bonds? Explain.
Chapter D Solutions
Macroeconomics
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- help please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all workingarrow_forward1. Explain what happens to the money supply, interest rates, investment spending and GDP when the Fed makes open market bond purchases. 2. Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve’s open market purchase of Treasury securities.arrow_forwardGraphically explain (using both bond market and money market graphs) what is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public. If the federal government were to reduce the income tax rates, would this have any impact on a state's cost of borrowing funds? Draw graphs and explain.arrow_forward
- Please explain the relationship between bond market and money market. Explain the process how an increase in the money supply by the Fed lowers the interest rate through the BOND MARKET to reach the new equilbrium interest rate. Explain the impact of increase in GDP on the interest rate.arrow_forwardAssume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits. What is the reserve requirement? Find the money multiplier. How much money is ‘created’ from the $9,000 deposit? If the reserve requirement is altered to 10%, what will this do to the money supply? What does this do to equilibrium interest rate in the market for loanable funds? (Show on a graph.) What is another way the Federal Reserve will achieve the same outcome in Part D?arrow_forwardOutline the ways in which FED easing affects the yield curve (include the theories of the yield curve as part of this). Is it possible for an increase in the real money supply (FED easing) to have exactly the opposite effect? Explain the basis for why this is or is not possible.arrow_forward
- Suppose that a bank does the following: a. Sets a loan rate on a prospective loan with BR = 8.04% and ϕ = 4.15%. b. Charges a 0.26 percent loan origination fee to the borrower. c. Imposes a 14 percent compensating balance requirement to be held as noninterest-bearing demand deposits. d. Holds reserve requirements of 9 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan. Note: Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.arrow_forwardUse a diagram to illustrate the market for reserves and show how open market purchases of securities by the Fed can decrease the federal funds rate from an initial equilibrium that is above the interest rate paid on reserves to a rate that is equal to the interest rate paid on reserves.arrow_forwardA series of oil price increases in the 1970s drove the U.S. economy into stagflation. In response to these shocks, Paul Volcker, an inflation hawk and chairman of the Fed at the time, decided to __ bonds to sharply ______ its target for the Federal Funds Rate sell, decrease buy, decrease sell, increase buy, increasearrow_forward
- Assume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits. If the reserve requirement is altered to 10%, what will this do to the money supply? What does this do to equilibrium interest rate in the market for loanable funds? (Show on a graph.) What is another way the Federal Reserve will achieve the same outcome in Part 1?arrow_forwardSuppose the Central Bank of Kenya pursues an aggressive Restrictive policy by increasing the reserve requirements to 25% in an attempt to control inflation. What is the effect of such a policy on the Credit Multiplier and Money Supply? Justify your answer.arrow_forwardIf the Fed wants to increase the money supply it will buy bonds. True Falsearrow_forward
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