1. If the required reserve ratio is 20% and $10,000 of new money is printed, and deposited into the system, by the federalreserve. What is the minimum change to the money supply is?$8,000$40,000$10,000$18,000$50,0002. If the economy is experiencing a recession that would be considered, a negative, GDP gap.a)Trueb)3. In the US economy the money supply is controlled by the:a)Senate committee on Banking and Financeb)World Banc)Federal Reserve Systemd)e)4. Consumption accounts fora)b)c)d)e)a)b)c)US CongressUS Treasury Departmentd)False587020d)e)5. The group that sets the Federal Reserve System policy on buying and selling government securities is the:a)Federal Depository Insurance Corporationb)Federal Bond Sale Authorityc)Federal Open Market CommitteeFederal Organization of Monetary Authority48percent of total expenditures in the US economy.19

Required Reserve Ratio:The required reserve ratio is the proportion of a bank's total deposits that…

1. If the required reserve ratio is 20% and $10,000 of new money is printed, and deposited into the system, by the federal reserve. What is the minimum change to the money supply is? a) $8,000 b) $40,000 c) $10,000 d) $18,000 $50,000 D

1. If the required reserve ratio is 20% and $10,000 of new money is printed, and deposited into the system, by the federal reserve. What is the minimum change to the money supply is? a) $8,000 b) $40,000 c) $10,000 d) $18,000 $50,000 D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…
16. Suppose that the Federal Reserve conducts an open market operation in which it purchases $100 in US Treasury bonds from a private saver. (a) In an economy without banks, by how much, in dollar terms, will the total money supply increase as a result of this open market operation? (b) In an economy with banks in which all members of the nonbank public immedi- ately deposit all of the currency they receive, but in which all banks engage in 100 percent reserve banking, by how much will the total money supply increase as a result of this open market operation? (c) In an economy with banks, in which all banks choose a 10% reserve ratio and in which all members of the nonbank public immediately deposit all of the currency they receive, by how much will the total money supply increase as a result of this open market operation? (d) In an economy with banks, in which all banks choose a 10% reserve ratio, but in which all members of the nonbank public hold 50% of the funds they receive as…
Figure 3: Msl.Ms1 Interest Rate (%) 10% 8% 6% Md 100 200 Money (S million) 13. Refer to Figure 3. If the money supply increases from MSo to MS1: a) money demand must decrease for the money market to return to equilibrium. b) the interest rate will decrease to 6%. c) the interest rate will increase to 10%. d) the money market will return to equilibrium only if the money supply is reduced to its original level.
Q.1.6 Which of the following will cause the demand curve for money to shift to theright?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.
3. This question focuses on the market for central bank money. Assume that people hold no currency and that the ratio of reserves to deposits is 0.1. The demand for money money is given by Md = $Y (0.8-4i) The nominal income is $5000 and the supply of central bank money is $100. (a) What is the demand for central bank money? (b) Find the equilibrium interest rate in the market for central bank money.
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve ( AD1 ). Suppose the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2 ) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2 ) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. 116 114 AD, 112 AD, 110 AD, 108 106 104 102 100 100 102 104 106 108 110 112 114 116 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $30 billion. PRICE LEVEL
4. Consider a money market in which there is an excess supply of money at the current interest rate. Then what likely to happen is the money supply curve will shift to the right until the demand for money equals the supply. the money demand curve will shift to the right, causing the price of bonds to increase, and the interest rate to fall, until the demand for money equals the supply. the corresponding excess supply for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. the corresponding excess demand for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. the money supply curve will shift to the left until the demand for money equals the supply.
60) Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion. Suppose the Federal Reserve increases the money supply to $850 billion. At the previous equilibrium interest rate of 5 percent, will households and firms now be holding more money or less money than they want to hold, and will they be buying or selling short-term financial assets? At the new equilibrium interest rate, households and firms will desire to hold the entire $850 billion of the money supply. What causes households and firms to want to hold the additional $50 billion of the money supply? 61) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases. 1
19. Suppose that the money supply is $100, the velocity of money is 4, and real GDP is 200. (a) What is nominal GDP? (b) What is the price level (the GDP deflator)? (c) Assuming that the velocity of money is constant, what will nominal GDP equal if the Fed acts to increase the money supply to $200? (d) Assuming that the velocity of money is constant and that "money is neutral in the long run," what will real GDP equal in the long run if the Fed acts to increase the money supply to $200? (e) Still assuming that the velocity of money is constant and that money is neutral in the long run, what will the price level equal in the long run if the Fed acts to increase the money supply to $200?
19. Monetary policy that reduces the money supply will cause the interest rate to and output to which will cause investment to by an amount than the initial change in investment. a. Decrease; increase; increase; less b. Increase; increase; decrease; greater c. Increase; decrease; decrease; greater d. Decrease; increase; increase; less 20. If expansionary fiscal policy in the form of an increase in government spending causes interest rates to rise, we would expect investment to increase in output. This offset is referred to as a. Increase; multiplier b. Decrease; crowding out c. Increase; crowding in d. Decrease; multiplier offsetting in part the
16. When the supply for money increases and the demand for money reduces, there will be * A fall in the level of prices An increase in the rate of interest A fall in the level of demand O A decrease in the rate of interest
Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Q.1.6 Which of the following will cause the demand curve for money to shift to the right?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.