Question

ODE ookmarks The purpose of the Unit Exercises is to assess the student's ability to apply the economics concepts learned in the unit to practical problem-solving scenarios. marks Toolbar mats Menu Bookmarks Instructions Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00p.m. on Sunday of Unit 7 or as directed by your professor 1. Debit cards allow an individual to transfer funds directly in a checkable account to a merchant without writing a check. How is this different from the way credit cards work? Are either credit cards or debit cards money? Explain. 2. How would each of the following affect the demand for money? a. a tax on bonds held by individuals b. a forecast by the Central bank that interest rates will rise sharply in the next quarter 3. Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP and the price level. 4. The text notes that a 10% increase in the money supply may not increase the price level by 10% in the short run. Explain why. 5. Suppose the Central bank were required to conduct monetary policy so as to hold the unemployment rate below 4%. What implications would this have for the economy? Submission status O type here to search A do ING RPM 2019-11-22

Answer 1

SOLUTION

1) DEBIT CARDS AND CREDIT CARDS

Debit cards draw money from your bank account.But credit cards allow you to borrow money that must be repaid.Credit cards offer several advantages, including the chance to build credit and improved security measures.While debit card is just like a plastic check: while you make a purchase, it takes the money directly out of the bank account, the money is being taken out as soon as you swipe, you wont get a bill and you don't need to pay interest.

Your credit cards on the other hand is like a loan; when you open a credit card you are approved for a certain line of credit in which you can spend before your card is being maxed out and can no longer used for purchases.

hence I put in a point that both have equal advantages.

2 DEMAND EFFECT ON MONEY

a TAX ON BONDS

For listed bond held for more than one year the demand would be, long term capital 10% plus surcharge (as applicable). If the cash flows from the issuer of the bond to the investor is treated as capital appreciation instead of coupon there would be tax efficiency.

b FORECAST BY THE CENTRAL GOVERNMENT

The RBI has projected India's GDP Growth 6.9 %- in the range of 5.8-6.6% for the first half (April- September). Of 2019-2020 and 7.3-7.5% for the second half (October-March). While most analysts and financial institutions estimated a growth rate of 6.5-7% for 2019-20%.

3) IMPACT ON SALE OF GOVERNMENTS ON CENTRAL GOVERNMENT

A central government can enact monetary policies several ways. The primary means the central government uses to implement an expansionary monetary policy is through open market operations. the central bank can issue debit in exchange for cash. this results in less cash being in an economy.

The higher interest rates can also lead to slow inflation. Consumption and investment are discouraged, and market actors will choose to save instead of circulating their money in the economy. Effectively the money supply is smaller, and there is reduced upward pressure on prices since the demand for consumption of goods and services has been dropped.

4) WHY THE 10 % OF MONEY SUPPLY DOES NOT INCREASE THE PRICE LEVEL

It is because, interest rates fall when the money supply increases because of the fact of the increased money supply makes it more plentiful. When the Federal Reserve Board wants to reduce the supply of money in the economy as a check on inflationary pressures, it increases the rates that bank charges each other for short run.

5) THE CENTRAL GOVERNMENT ON MONETARY POLICIES

The unemployment rate that exists when an economy is producing the full employment output; that is when an economy is in regression, the current unemployment rate is higher than the natural rate and at the other hand the unemployment rate is been less than the natural rate.