Assume the following conditions hold. At all banks, excess reserves are zero. a b. The deposit expansion multiplier is 3. The investment spending function is as illustrated in the figure below C. Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent. Interest Rate (percent)
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- 6. a) If US money supply in the beginning of the year is $1148 billion. Suppose the FedBank has decided to raise the reserve ration from 10 percent to 11 percent. How itwould affect the money supply? b) If tax multiplier is -2, what is the government spending multiplier? c) In order to increase equilibrium income, either the government can increasegovernment spending or may go for tax cut? What would you suggest and why?1: Based on the simple accelerator model , the value of alpha or the accelerator confident, describes The magnitude of the change in the investment due to changes in output About the positive effects on investment About the autonomous spending multiplier The ratio of output to capital 2: if central bank of Malaysia raises the required reserve ratio from 20 to 25 percent if reserves are 30rm billions, the checkable deposits are: RM 180 billion RM 54 billion RM 120 billion RM 24 billionThe reserve requirement is 10%. Suppose that the Fed purchases $50,000 worth of U.S. government securities from a bond dealer, electronically crediting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction? A. The required reserves of Reliable Bank increase by $50,000. B. The total reserves of Reliable Bank increase by $50,000. C. Reliable Bank can make $50,000 in new loans. D. The excess reserves of Reliable Bank increase by $50,000. -ம்
- The banking system in Venus nation holds a total of $900 trillion in reserves, the reserve requirement is 6%, and excess reserves of $15 trillion. O The level of deposits is $15,000 trillion O The level of deposits is $14,750 trillion O The level of deposits is $15,250 trillion O The level of deposits is $14,985 trillion Next In the Market for Loanable Funds model, which of the following events would shift the savings curve to the right? O In response to tax reform, firms are encouraged to invest more than they previously invested. O In response to tax reform, households are encouraged to save more than they previously saved. Government goes from running a balanced budget to running a budget deficit. O Any of the given events would shift the savings curve to the right.Suppose that the reserve requirement for chequing deposits is 15 % and the banks donot hold any excess reserves. What is the effect on the economy’s reserves and themoney multiplier if the central bank sells $2 million of government bonds?The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 15.0 Money Supply Money Demand 0 Money Supply 12.5 10.0 INTEREST RATE 5 5.0 25 0 0 20 Money Demand 40 60 80 100 MONEY (Billions of dollars) 120
- The maximum value of the monetary policy multiplier is (where b implies sensitivity of planned investment spending to interest rate, c implies marginal propensity to consume and t = marginal tax rate. k implies sensitivity of money demand to interest rate). 1. 2. 3. b 1-c(1-1) 31/10 k 4. k 1-c(1-t) 1 b8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply ollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth $ of U.S. government…If Central Bank buys security bills in the open market; then what happens to equilibrium interest and equilibrium output under the following conditions?Sketch graph for each condition and explain your answer. a) When interest elasticity of investment is low b) When interest elasticity of investment is high c) When interest elasticity of investment is zero
- Cash held by public Transactions deposits Required reserves Excess reserves U.S. bonds held by public Item Amount The public will hold $375 billion in bonds. O The money supply will increase by $25 billion. The money supply will increase by $125 billion $80 billion $150 billion $30 billion $0 billion $350 billion If the Federal Reserve buys $25 billion in bonds from the public, then which of the following is true after the multiplier process? Excess reserves would go up by $20 billion.Explain what a $5 billion increase in bank reserves will do to real GDP under the following assumptions: a.Each $1 billion increase in bank reserves reduces the rate of interest by 0.5 percentage point. b. Each 1 percentage point decline in interest rates stimulates $30 billion worth of new investment. c. The expenditure multiplier is two. d. The aggregate supply curve is so flat that prices do not rise noticeably when demand increasesThe Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks by $320 billion. It plans to use open-market operations to accomplish this goal. The current reserve requirement for commercial banks is 5 percent. Instructions: Enter your answer as a whole number. a. Will the Fed want to buy or sell government securities if sales or purchases of government securities are the only instrument used in the open-market operations? The Fed will want t (Clicca total of $1 billion in government securities. ue-rather than permanently transferring the ownership of securities to achieve its goal? commercial banks. buy b. What other option cell The Fed could use some amount of (Click to select) to effectively (Click to select)