CHAPTER 36 ASSIGNMENT - ECON201
Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. By how much will the total potential money supply change if the Federal Reserve changes the amount of reserves by -$50 million?
$-500 million
Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. Suppose the Federal Reserve wants to decrease the total money supply by $600 million. By how much should the Federal Reserve change reserves to achieve this goal?
$-60 million
Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. By how much will the total potential money supply change if the Federal Reserve changes the amount of reserves by -$80 million?
$-800 million
A bank borrows $100,000 from the Fed, leaving a $100,000 Treasury Bond on deposit with the Fed to serve as collateral for the loan. The discount rate that applies to the loan is 4 percent, and the Fed is currently mandating a reserve ratio of 10 percent. How much of the $100,000 borrowed by the bank must it keep as required reserves?
$10,000 $4000 $100,000 $0 $0
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because they fear loan defaults. Finally, suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence returns. By how much would banks' lending potential decline as a result of the increase in the reserve ratio?
$16,660
Refer to the table for Moola below to answer the following questions. What is the level of investment at the equilibrium interest rate?
$20
A bank currently has $100,000 in checkable deposit and $15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has _____ in money-creating potential. If the reserve ratio is 14 percent, the bank has _______ in money-creating potential.
$3000; $2100 $5000; $1000 -$5000; $1000 $20,000; $14,000 -$5000; $1000
Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. Suppose the Federal Reserve wants to decrease the total money supply by $500 million. By how much should the Federal Reserve change reserves to achieve this goal?
$50 million
If there is an increase in the nation's money supply, the interest will
-Fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise. -Rise, investment spending will fall, aggregate demand will shift right, real GDP will fall, and the price level will rise. -Fall, investment spending will rise, aggregate demand will shift right, real GDP will rise, and the price level will fall. -Rise, investment spending will fall, aggregate demand will shift right, real GDP will rise, and the price level will fall. Fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise.
Total money demand is the
-Horizontal sum of the transactions demand for money and the asset demand for money -Vertical sum of the transaction demand for money and the asset demand for money -Vertical sum of the private demand for money and the asset demand for money -Horizontal sum of the consumer demand for money and the producer demand for money Horizontal sum of the transactions demand for money and the asset demand for money
Suppose that you are a member of the Board of Governors of the Federal Reserve System and the economy is experiencing an 8 percent inflation rate. Unemployment is at the full-employment level and the target interest rate is currently 4 percent. To lower the inflation rate to 4 percent, you recommend contracting the money supply,
-Increasing the reserve ratio, the IOER rate, or the discount rate, or selling bonds. -Increasing the reserve ratio, decreasing the IOER rate or discount rate, or selling bonds. -Decreasing the reserve ratio, increasing the IOER rate or the discount rate, or buying bonds. -Decreasing the reserve ratio, the IOER rate, or the discount rate, or buying bonds. Increasing the reserve ratio, the IOER rate, or the discount rate, or selling bonds.
When economists say that monetary policy can exhibit cyclical asymmetry, it means that
-Recessions are shorter than inflations. -The Fed is able to deal with only inflation. -Expansionary monetary policy and restrictive monetary policy cannot both be used for economic expansion and contraction. -Expansionary monetary policy and restrictive monetary policy do not have the same potential for economic expansion and contraction. Expansionary monetary policy and restrictive monetary policy do not have the same potential for economic expansion and contraction.
Suppose that you are a member of the Board of Governors of the Federal Reserve System and the economy is experiencing an 8 percent inflation rate. Unemployment is at the full-employment level and the target interest rate is currently 4 percent. The recommendations you provided above would
-Reduce the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation. -Increase the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation. -Increase the lending ability of the banking system, decrease the real interest rate, and reduce investment spending, aggregate demand, and inflation. -Reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregate demand, and inflation. Reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregate demand, and inflation.
Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. What is the money multiplier?
10
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because they fear loan defaults. Finally, suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence returns. What is the size of the monetary multiplier before the change in the reserve ratio? What is the size after the change?
10.00 6.67
In 1980, the U.S. inflation rate was 13.5 percent and the unemployment rate reached 7.8 percent. Suppose that the target rate of inflation was 3 percent back then and the full-employment rate of unemployment was 5 percent at the time. What value does the Taylor Rule predict for the Fed's target interest rate?
17.95 percent
In 1980, the U.S. inflation rate was 13.5 percent and the unemployment rate reached 7.8 percent. Suppose that the target rate of inflation was 3 percent back then and the full-employment rate of unemployment was 6 percent at the time. What value does the Taylor Rule predict for the Fed's target interest rate?
18.95 percent
Refer to the table for Moola below to answer the following questions. What is the expenditure multiplier in Moola?
2
Refer to the table for Moola below to answer the following questions. What is the level of investment at the equilibrium interest rate
20
Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. What is the equilibrium interest rate in Trance?
4 percent
Refer to the table for Moola below to answer the following questions. What is the equilibrium interest rate in Moola?
5 percent
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because they fear loan defaults. Finally, suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to inflation once the economy begins to recover and confidence returns. By how many percentage points does the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves?
5 percentage points
Suppose that actual inflation is 2.5 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 3 (which is 1 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
5.8 +/- 0.2 percent
Refer to the table for Moola below to answer the following questions. What is the equilibrium interest rate in Moola?
6 percent
The asset demand for money 'Da' is shown in the graph below. The transactions demand for money is $50 billion. The supply of money is $150 billion. What is the equilibrium interest rate?
6 percent rate
Suppose that actual inflation is 3 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 3 percent (which is 1 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?
6.5 percent
Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $170 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. What is the equilibrium interest rate in Trance?
8 percent
The equilibrium interest rate in the money market is determined
At the intersection of the aggregate demand and aggregate supply curves By the Fed At the intersection of the total demand for money curve and the supply of money curve By how much the interest rate fluctuates over time At the intersection of the total demand for money curve and the supply of money curve
Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $900. What generalizations can you draw from the completed table?
Bond prices and interest rates are inversely related. There is insufficient data to make a generalization. Bond prices and interest rates are not related. Bond prices and interest rates are directly related. Bond prices and interest rates are inversely related.
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. The Federal Reserve Banks buy $2 billion of securities from commercial banks. Show the new balance-sheet numbers in column 3 of each table
Consolidate Balance Sheet: All Commerical Banks ASSETS: Reserves: 33, 34, 30, 35 Securities: 60, 60, 60, 58 Loans: 60, 60, 60, 60 LIABILITIES AND NETWORTH: Checkable Deposits: 150, 150, 147, 150 Loans from the Federal Reserve Banks: 3, 4, 3, 3 Consolidated Balance Sheet: The 12 Federal Reserve Banks ASSETS: Securities: 60, 60, 57, 62 Loans to Commercial Banks: 3, 4, 3, 3 LIABILITIES AND NETWORTH Reserves of Commercial Banks: 33, 34, 30, 35 Treasury Deposits: 3, 3, 3, 3 Federal Reserve Notes: 27, 27, 27, 27
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. A decline in the discount rate prompts commercial banks to borrow an additional $3 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table.
Consolidated Balance Sheet: 12 Federal Reserve Banks ASSETS Securities: 60, 60, 55, 64 Loans to Commercial Banks: 3, 6, 3, 3 LIABILITIES AND NETWORTH Reserves of Commerical Banks: 33, 36, 28, 37 Treasury Deposits: 3, 3, 3, 3 Federal Reserve Notes: 27, 27, 27, 27 Consolidated Balance Sheet: All Commercial Banks ASSETS Reserves: 33, 36, 28, 37 Securities: 60, 60, 60, 56 Loans: 60, 60, 60, 60 LIABILITIES AND NETWORTH Checkable Deposits: 150, 150, 145, 150 Loans from the Federal Reserve Banks: 3, 6, 3, 3
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. The Federal Reserve Banks sell $5 billion in securities to members of the public, who pay for the bond with checks. Show the new balance-sheet numbers in column 2 of each table.
Consolidated Balance Sheet: 12 Federal Reserve Banks ASSETS Securities: 60, 60, 55, 64 Loans to Commercial Banks: 3, 6, 3, 3 LIABILITIES AND NETWORTH Reserves of Commerical Banks: 33, 36, 28, 37 Treasury Deposits: 3, 3, 3, 3 Federal Reserve Notes: 27, 27, 27, 27 Consolidated Balance Sheet: All Commercial Banks ASSETS Reserves: 33, 36, 28, 37 Securities: 60, 60, 60, 56 Loans: 60, 60, 60, 60 LIABILITIES AND NETWORTH Checkable Deposits: 150, 150, 145, 150 Loans from the Federal Reserve Banks: 3, 6, 3, 3
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. A decline in the discount rate prompts commercial banks to borrow an additional $1 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table.
Consolidated Balance Sheet: 12 Federal Reserve Banks ASSETS: Securities: 60, 60, 57, 62 Loans to Commerical Banks: 3, 4, 3, 3 LIABILITIES AND NETWORTH: Reserves of Commerical Banks: 33, 34, 30, 35 Treasury Deposits: 3, 3, 3, 3 Federal Reserve Notes: 27, 27, 27, 27
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. The Federal Reserve Banks buy $4 billion of securities from commercial banks. Show the new balance-sheet numbers in column 3 of each table.
Consolidated Balance Sheet: All Commercial Banks ASSETS Reserves: 33, 36, 28, 37 Securities: 60, 60, 60, 56 Loans: 60, 60, 60, 60 LIABILITIES AND NETWORTH Checkable Deposits: 150, 150, 145, 150 Loans from the Federal Reserve Banks: 3, 6, 3, 3 Consolidated Balance Sheet: 12 Federal Reserve Banks ASSETS Securities: 60, 60, 55, 64 Loans to Commerical Banks: 3, 6, 3, 3 LIABILITIES AND NETWORTH Reserves of Commercial Banks: 33, 36, 38, 37 Treasury Deposits: 3, 3, 3, 3 Federal Reserve Notes: 27, 27, 27, 27
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. The Federal Reserve Banks sell $3 billion in securities to members of the public, who pay for the bond with checks. Show the new balance-sheet numbers in column 2 of each table.
Consolidated Balance Sheet: All Commercial Banks ASSETS: Reserves: 33, 34, 30, 35 Securities: 60, 60, 60, 58 Loans: 60, 60, 60, 60 LIABILITIES AND NETWORTH: Checkable Deposits: 150, 150, 147, 150 Loans from the Federal Reserve Banks: 3, 4, 3, 3
A commercial bank sells a Treasury bond to the Federal Reserve for $100,000. The potential money supply:
Decreases. Increases. Is unaffected by the transaction. increases
Refer to the table for Moola below to answer the following questions. Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap?
Increase the money supply by $100
The basic determinant of the transactions demand for money is the
Level of nominal GDP Interest rate Price level Reserve ratio Level of nominal GDP
The basic determinant of the asset demand for money is the
Level of nominal GDP Price level Reserve ratio Interest rate Interest Rate
Cyclical asymmetry is important to policymakers because
Monetary policy is more effective in fighting inflation than a recession. Recessions are shorter than inflations. Monetary policy is more effective in fighting a recession than inflation. Fiscal policy is more effective in fighting inflation than a recession. Monetary policy is more effective in fighting inflation than a recession.
The bullseye chart, developed by the Federal Reserve Bank of Chicago, is a visual comparison of the current state of the economy with the Fed's dual mandate of full employment and stable prices. A point representing actual unemployment and inflation is plotted on the chart and can be visually compared to the Fed's target point. If the current point lies to the ______ of the center of the bullseye, the Fed's stance on monetary policy will be clear.
Northeast or southwest Northwest or southeast Northeast or southeast Northwest or southwest Northwest of southeast
The bullseye chart, developed by the Federal Reserve Bank of Chicago, is a visual comparison of the current state of the economy with the Fed's dual mandate of full employment and stable prices. A point representing actual unemployment and inflation is plotted on the chart and can be visually compared to the Fed's target point. If the current point lies to the _______of the center of the bullseye, the state of the economy will suggest opposite monetary policy stances.
Northeast or southwest Northwest or southwest Northeast or southeast Northwest or southeast northeast or southwest
In 2009, the inflation rate reached negative 0.4 percent while the unemployment rate hit 10 percent. If the target inflation rate was 2 percent and the full-employment rate of unemployment was 5 percent, what value did the Taylor Rule predict for the Fed's target interest rate back then? Would that rate have been possible given the zero lower bound problem?
Positive 0.4 percent; possible. Positive 6.4 percent; possible. Negative 4.6 percent; not possible. Negative 5.6 percent; not possible. negative 4.6 percent; not possible
Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. At the equilibrium interest rate, what are the quantity of money supplied, the quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance?
Quantity of money supplied = $200 billion Quantity of money demanded = $200 billion Amount of money demanded for transactions = $150 billion Amount of money demanded as an asset = $50 billion
Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $170 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. At the equilibrium interest rate, what are the quantity of money supplied, the quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance?
Quantity of money supplied = $200 billion Quantity of money demanded = $200 billion Amount of money demanded for transactions = $170 billion Amount of money demanded as an asset = $30 billion
Refer to the table for Moola below to answer the following questions. Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate and, if either, what is the amount?
Recessionary output gap of $20
Suppose that you are a member of the Board of Governors of the Federal Reserve System and the economy is experiencing an 8 percent inflation rate. Unemployment is at the full-employment level and the target interest rate is currently 4 percent. If the economy is experiencing a sharp rise in inflation, as a member of the Board of Governors, you would recommend
Setting the Federal funds rate equal to the discount rate. Setting the federal funds rate equal to zero. Decreasing the federal funds rate. Increasing the federal funds rate. Increasing the federal funds rate.
The 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. What other option could the Fed pursue - rather than permanently transferring the ownership of securities - to achieve its goal?
The Fed could use some amount of repos to effectively lend money to commercial banks.
Which of the following Fed actions will increase bank lending? Select one or more answers from the choices shown.
The Fed lowers the discount rate from 4 percent to 2 percent. The Fed sells bonds to commercial banks. The Fed raises the discount rate from 5 percent to 6 percent. The Fed raises the reserve ratio from 10 percent to 11 percent. The Fed lowers the discount rate from 4 percent to 2 percent.
The 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. 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 to buy a total of $16 billion in government securities
The 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. 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 to buy a total of $16 billion in government securities.
Monetary policy is easier to conduct than fiscal policy because
The economy responds better to monetary policy than to fiscal policy. The Fed has more control of the economy. Monetary policy has a much shorter administrative lag than fiscal policy. Monetary policy is easier to understand. Monetary policy has a much shorter administrative lag than fiscal policy.
Investment demand and the market for money are shown in the graphs below. If the economy has a recessionary gap of $100 billion and the MPC is 0.8, what level of the money supply should the central bank target if it wants to bring real GDP back to the full-employment level? Demonstrate your answer graphically.
The market for money graph: two green lines going vertically, one red line going in a slanted the graph: a green line slanted across
Complete the following statement: If there is an increase in the total demand for money,
The money supply will rise. The money supply will fall. The equilibrium interest rate will fall. The equilibrium interest rate will rise. The equilibrium interest rate will rise.
A major strength of monetary policy is
The relatively short appointments of members of the Fed's Board of Governors. Its speed and flexibility. The rule that it uses to manage the economy. Its long-term consequences. Its speed and flexibility
Suppose a bond with no expiration date has a face value of $10,000 and annually pays $800 in fixed interest. What generalizations can you draw from the completed table?
There is insufficient data to make a generalization. Bond prices and interest rates are directly related. Bond prices and interest rates are not related. Bond prices and interest rates are inversely related Bond prices and interest rate are inversely related
The basic objective of monetary policy is
To assist the economy in achieving a full-employment, noninflationary level of total output. To increase employment and stabilize exchange rates. To maintain steady exchange rates and lower inflation. To eliminate inflation and lower interest rates. To assist the economy in achieving a full-employment, noninflationary level of total output.
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?
Transaction a: The money supply did not change. Reserves increased from $33 billion to $36 million. The money-creating potential increased by $15 billion. Transaction b: The money supply decreased by $5 billion. Reserves decreased from $33 billion to $28 billion. The money-creating potential decreased by $20 billion. Transaction c: The money supply did not change. Reserves increased from $33 billion to $37 billion. The money-creating potential increased by $20 billion.
In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets will read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?
Transactions a: The money supply did not change. Reserves increased from $33 billion to $34 billion. The money-creating potential increased by $5 billion. Transaction b: The money supply decreased by $3 billion. Reserves decreased from $33 billion to $30 billion. The money-creating potential decreased by $12 billion. Transaction c: The money supply did not change. Reserves increased from $33 billion to $35 billion. The money-creating potential increased by $10 billion.
The Taylor Rule puts ______ as much weight on closing the unemployment gap as it does on closing the inflation gap.
Twice Ten times Just Half twice
When bond prices go up, interest rates go______.
Up Nowhere Down down
Aggregate supply and aggregate demand at various levels of aggregate expenditures for a fictitious country are shown in the graph below. The level of investment associated with each aggregate demand curve is provided in the accompanying table. The current equilibrium value of real GDP is $840 billion. This is above the full-employment level of real GDP. The central bank decides that it wants to use monetary policy to change the level of investment in the economy. Its goal is to bring GDP back to the full-employment level of $820 billion. After enacting monetary policy, the economy's level of investment decreases to $20 billion. Use the graph above to show the economy's new level of real GDP.
graph
The asset demand for money 'Da' is shown in the graph below. The transactions demand for money is $50 billion. The supply of money is $150 billion. Show graphically the total demand for money and the supply of money for this economy.
graph
Refer to the table for Moola below to answer the following questions. Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap?
increase money supply by $100
Aggregate supply and aggregate demand at various levels of aggregate expenditures for a fictitious country are shown in the graph below. The level of investment associated with each aggregate demand curve is provided in the accompanying table. The current equilibrium value of real GDP is $840 billion. This is above the full-employment level of real GDP. The central bank decides that it wants to use monetary policy to change the level of investment in the economy. Its goal is to bring GDP back to the full-employment level of $820 billion. After enacting monetary policy, the economy's level of investment decreases to $20 billion. According to the results of your graph, the central bank reduced the money supply by
too much
True or False. A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.
true
True or False. In the United States, monetary policy has two key advantages over fiscal policy: (1) isolation from political pressure and (2) speed and flexibility.
true
