Homework Answers
If Fed reduces reserve requirements, the commercial banks can lend more. As a result, supply of money increases in the money market. In this case, equilibrium interest rate falls and equilibrium quantity of money rises.
With the decrease in reserve requirement and thereby decrease in interest rates, investment rises and vice-versa. With fall in interest rate from r to r', investment rises from I to I' as shown in the diagram below.
With the reduction in reserve requirements, money supply falls. This will cause fall in consumer spending and aggregate demand. As a result, aggregate demand curve shifts to the left on the AD-AS graph. This causes equilibrium price level to fall from P to P' and equilibrium output level to fall from Y to Y' as well.
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Assume the Fed reduces the reserve requirements. Illustrate what you anticipate would happen to the Money Mark...
Why can't the Fed control the money supply perfectly? What are reserve requirements? What happens when...
Why can't the Fed control the money supply perfectly? What are reserve requirements? What happens when the Fed raises reserve requirements?
8 (12-13 pts) Assume the economy is at its full-employment level of output (at the LRAS). engages in contractionary monetary policy, what will be the effect If the Federal Reserve on the interest...
8 (12-13 pts) Assume the economy is at its full-employment level of output (at the LRAS). engages in contractionary monetary policy, what will be the effect If the Federal Reserve on the interest rate, planned investment, and output? Show the change using the money market, planned investment graph and the aggregate expenditure model Show the short-run change using AD-AS. (There is no need to show additional changes to the money market or aggregate expenditure model.) Indicate all changes in relevant...
What happens to the fed funds rate when the Fed increases the reserve requirements? Draw the...
What happens to the fed funds rate when the Fed increases the reserve requirements? Draw the graph and explain what happens to the federal funds rate.
What action can the Federal Reserve take to reduce unemployment? Using one of the tools available...
What action can the Federal Reserve take to reduce unemployment? Using one of the tools available to the Federal Reserve, explain how the Fed would accomplish the action you listed. Assume the economy is currently operating at the natural rate of unemployment, what affects will the action you listed in response to have in the short run on output, price level, and interest rates? Please use the AS/AD and Money Market diagrams to illustrate your answer. Again, assume the economy is...
1) If the Fed wants to do easy money policy, it can a. increase reserve requirements...
1) If the Fed wants to do easy money policy, it can a. increase reserve requirements b. buy bonds from banks c. sell bonds in the open market d. raise the discount rate 2) The Lombard method: a. is a method for the Fed loaning reserves to banks b. is described accurately by all listed options c. put the rate on federal funds above the rate on discount loans d. has not been used since 2003
3. Assume the required reserve ratio is 40% and the Open Market Committee of the FED...
3. Assume the required reserve ratio is 40% and the Open Market Committee of the FED sells $500 billion in bonds to the public. Assuming banks give out as many loans as possible, what is the total change in the money supply? What is the total change in Transaction Accounts? If the M1 was originally $9500 billion, what is the new M1 ( After the change)You must show your work. 4. Assume the required reserve ratio is 10% and the...
Use the money market equilibrium diagram to graphically show what would happen to the price level...
Use the money market equilibrium diagram to graphically show what would happen to the price level if the Federal Reserve buy government bonds.
8. The reserve requirement, open market operations, and the money supply Assume that banks do not...
8. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) Money Supply (Dollars) Simple Money Multiplier A lower reserve requirement is associated...
Draw a graph of the money market to illustrate equilibrium in the short run. Show what...
Draw a graph of the money market to illustrate equilibrium in the short run. Show what happens if the Reserve Bank conducts an open market selling of securities. Please can uh give me an elaborated answered. this question is for 4 marks. Thanks
Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should...
Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should it do? a. Increase the reserve requirement ratio. b. Buy bonds on the open market. c. Sell bonds on the open market. d. Lower taxes. e. Increase the discount rate. The interest rate at which banks can borrow funds from the Fed is known as… a. the federal funds rate. b. the discount rate. c. the prime rate. d. the real interest rate. e....
8 (12-13 pts) Assume the economy is at its full-employment level of output (at the LRAS). engages in contractionary monetary policy, what will be the effect If the Federal Reserve on the interest rate, planned investment, and output? Show the change using the money market, planned investment graph and the aggregate expenditure model Show the short-run change using AD-AS. (There is no need to show additional changes to the money market or aggregate expenditure model.) Indicate all changes in relevant...
8. The reserve requirement, open market operations, and the money supply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) Money Supply (Dollars) Simple Money Multiplier A lower reserve requirement is associated...
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