Homework Answers
Option E is correct. Targeting the money supply or targeting the interest rate are two alternativrle used by the central bank
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In general, any central bank has two alternative approaches for implementing its monetary policy. These alternatives...
6. MONETARY AND FISCAL POLICY WITH AN INTEREST RATE TARGET a. What is the slope of...
6. MONETARY AND FISCAL POLICY WITH AN INTEREST RATE TARGET a. What is the slope of the LM curve when there is an interest rate target? b. What is the intercept of the LM curve when there is an interest rate target? c. If the level of investment responds strongly to the rate of interest, and the central bank is following an interest rate target, draw the consequences for output when the interest rate target is increased. When is fiscal...
Which central bank has its exchange rate as a focus of its monetary policy? A. Bank...
Which central bank has its exchange rate as a focus of its monetary policy? A. Bank of Canada B. European Central Bank C. Bank of England D. Federal Reserve
Stabilization policies are often used to bring about economic equilibrium: 1. Monetary policy is implemented by...
Stabilization policies are often used to bring about economic equilibrium: 1. Monetary policy is implemented by the Bank of Canada (or Central Bank) - Manipulation of short-term interest rates - Management of the money supply 2. Fiscal policy is the responsibility of the Department of Finance and the Treasu Board - Government spending levels - Government deficit and borrowing policies Question: How would each of these policies tools be deployed to address a recessionary gap? An inflationary gap?
Assume that a central bank attempts to lower the expected inflation by making its monetary policy...
Assume that a central bank attempts to lower the expected inflation by making its monetary policy more conservative. How would its decision to attempt to lower the domestic money supply affect the value of the domestic currency on the foreign exchange market, in both short and longer run
What determines the magnitude of the changes in price level when central bank takes monetary policy...
What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand? a. Changes in the money supply b. Slope of the aggregate supply curve c. Rate of change of interest rate d. Total money supply in the economy
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision...
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision is based on A) the fact that the economy is at ful employment B) Expectation of excessive inflation in the future C) the fact that the economy is in an expansion D) Unemployment level is high 2) When the interest rate is set at a very low rate A) the opportunity cost of holding money is very low B) the money demand will shift...
14) Suppose the AE curve is mis-measured such that the Central Bank under- estimates the effects...
14) Suppose the AE curve is mis-measured such that the Central Bank under- estimates the effects of interest rates on expenditure. The economy starts off at Y* and TT and then experiences an adverse supply shock. The Central Bank follows non-accommodative policy using the incorrectly measured AE curve. For simplicity assume there are no lags. This leaves the economy in which of the following states? a) Recession; inflation above target b) Recession; inflation below target c) Expansion; inflation above target...
For the past decade, central banks around the world have adopted very expansionary Monetary Policy in...
For the past decade, central banks around the world have adopted very expansionary Monetary Policy in order to decrease the key policy rate of interest by increasing the growth in the domestic Money Supply, MS in order to stimulate domestic economic activity. Some commentators have been concerned about such policy resulting in higher rates of Inflation in the future as a result of the ‘Quantity Theory of Money.’ Using the Equation of Exchange, MSV0 = PYP: (1) The significance or...
The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing...
The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for: O prime interest rate. the velocity of money. O exchange rate. overnight lending rate.
6) Using money supply-money demand and the interest rate parity relationship, show how the central bank...
6) Using money supply-money demand and the interest rate parity relationship, show how the central bank can maintain fixed exchange rates in the face of changes in output. 7) Using the DD-AA model under fixed exchange rates, show the effects of monetary policy. What are the main results? 8) Using the DD-AA model under fixed exchange rates, show the effects of fiscal policy. What are the main results? 9) Using the DD-AA model under fixed exchange rates, show the effects...
6. MONETARY AND FISCAL POLICY WITH AN INTEREST RATE TARGET a. What is the slope of the LM curve when there is an interest rate target? b. What is the intercept of the LM curve when there is an interest rate target? c. If the level of investment responds strongly to the rate of interest, and the central bank is following an interest rate target, draw the consequences for output when the interest rate target is increased. When is fiscal...
Stabilization policies are often used to bring about economic equilibrium: 1. Monetary policy is implemented by the Bank of Canada (or Central Bank) - Manipulation of short-term interest rates - Management of the money supply 2. Fiscal policy is the responsibility of the Department of Finance and the Treasu Board - Government spending levels - Government deficit and borrowing policies Question: How would each of these policies tools be deployed to address a recessionary gap? An inflationary gap?
1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision is based on A) the fact that the economy is at ful employment B) Expectation of excessive inflation in the future C) the fact that the economy is in an expansion D) Unemployment level is high 2) When the interest rate is set at a very low rate A) the opportunity cost of holding money is very low B) the money demand will shift...
14) Suppose the AE curve is mis-measured such that the Central Bank under- estimates the effects of interest rates on expenditure. The economy starts off at Y* and TT and then experiences an adverse supply shock. The Central Bank follows non-accommodative policy using the incorrectly measured AE curve. For simplicity assume there are no lags. This leaves the economy in which of the following states? a) Recession; inflation above target b) Recession; inflation below target c) Expansion; inflation above target...
The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for: O prime interest rate. the velocity of money. O exchange rate. overnight lending rate.
6) Using money supply-money demand and the interest rate parity relationship, show how the central bank can maintain fixed exchange rates in the face of changes in output. 7) Using the DD-AA model under fixed exchange rates, show the effects of monetary policy. What are the main results? 8) Using the DD-AA model under fixed exchange rates, show the effects of fiscal policy. What are the main results? 9) Using the DD-AA model under fixed exchange rates, show the effects...
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