Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 34, Problem 9DQ
To determine
Why economists support an independent FED.
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Using the simply multiple deposit multiplier model, if the Federal Reserve Bank wants lending to increase by $4,500, and th
required reserve ratio is 5%, how much do they need to increase reserves by?
O 225
O 205
O 270
O 255
A headline reads: "Fed Cuts the Federal Funds Rate by Half a Point." This suggests that:
1) The prime interest rate will rise
2) Monetary policy has eased
3) Tax rates have been reduced.
O4) The discount rate will rise
1.
2.
3.
Which expression describes the flattest money demand schedule?
O a. 1=450-2(3)
O b. 1=450-9(3)
O c. L-5(200)-5(10)
O d. L=5(200)-8(10)
Which of the following will lead to an increase in the equilibrium interest rate in the money market?
O a. Increase in general price level
O b. An increase in income
O c. Decrease in general price level
d. The Central Bank increases money supply
Which of the following statements describes the LM curve?
O a. It has a negative slope.
O b. It describes the relationship between supply and demand of goods.
O c. It represents the combination of interest rate and income where the goods market is in equilibrium.
O d. None of the above
Chapter 34 Solutions
Economics (Irwin Economics)
Ch. 34 - Prob. 1DQCh. 34 - Prob. 2DQCh. 34 - Prob. 3DQCh. 34 - Prob. 4DQCh. 34 - Prob. 5DQCh. 34 - Prob. 6DQCh. 34 - Prob. 7DQCh. 34 - Prob. 8DQCh. 34 - Prob. 9DQCh. 34 - Prob. 10DQ
Ch. 34 - Prob. 11DQCh. 34 - Prob. 12DQCh. 34 - Prob. 13DQCh. 34 - Prob. 14DQCh. 34 - The three functions of money are: LO34.1 a....Ch. 34 - Prob. 2RQCh. 34 - Prob. 3RQCh. 34 - Prob. 4RQCh. 34 - Prob. 5RQCh. 34 - Prob. 6RQCh. 34 - Prob. 7RQCh. 34 - Prob. 8RQCh. 34 - Prob. 9RQCh. 34 - Prob. 1PCh. 34 - Prob. 2PCh. 34 - Prob. 3PCh. 34 - Prob. 4PCh. 34 - Prob. 5P
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- Suppose a customer makes a $2,280 cash withdrawal from Bank A. If the reserve requirement was total decrease in the money supply in the 6 percent, the deposit would ultimately lead to a economy, if all banks in the system lend out 100 percent of their excess reserves. O $2,143.20 O $2,280 O $28,500 O $35,720 $38,000arrow_forwardSuppose that in a certain banking system, the target reserve ratio is 45%. Keeping in mind the money multiplier, if the central bank in this economy wanted to expand the money supply by $400 billion, then by how much would this central bank need to increase the monetary base (MB)? O a. $355.00 billion O b. $72.50 billion O c. $180.00 billion O d. $11.25 billion O e. $27.59 billion f. $360.00 billion g. $7.27 billionarrow_forwardFigure 30-3 On the following graph, MS represents the money supply and MD represents money demand. O 2.0. O 14.3. O 2.9. VALUE OF MONEY O 0.35. 0.35 MS, 8000 MS₂ Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately 13000 QUANTITY OF MONEY MDarrow_forward
- Now, suppose the reserve ratio in the banking system changes to 20% and a $100,000 is deposited into the first bank in the system. What will be the immediate excess reserves for that first bank in the system and by how much can the total money supply in the system expand? O $100,000; $1,900,000. O $80,000; $400,000 $90,000; $900,000. O $10,000; $100,000.arrow_forwardTable 29-6. Reserves Loans O $106,000 O $60,000 O $72,000 Assets O $50,200 Bank of Springfield $19,200 228,000 Refer to Table 29-6. Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? Deposits Liabilities $240,000arrow_forwardSuppose the reserve ratio of a bank is 0.125 and the Fed buys $10 billion worth of government bonds. What is the maximum impact this has on the money supply? O $80 billion O-$15.625 billion $15.625 billion O $125 billionarrow_forward
- Using the simply multiple deposit multiplier model, the Federal Reserve Bank desires to increase the size of checkable deposits by $50,500. If the required reserve ratio is 5%, then the Fed needs to purchase worth of securities in the open market. O $2,445 O $2,650 O $2,525 O $2,500arrow_forwardSuppose a banking system has a required reserve ratio of 10% and a $100,000 is deposited into the first bank in the system. What will be the immediate excess reserves for that first bank in the system and by how much can the total money supply in the system expand? $70,000; 700,000. O $100,000; $1,900,000. $90,000, $900,000. O $10,000; $100,000.arrow_forwardSuppose it becomes easier to sell bonds and bonds becomes more liquid relative to money. What would most likely occur? O A. Bond demand will decrease, bond prices will decrease, and the interest rates on bonds will decrease. O B. Bond demand will increase, bond prices will increase, and the interest rates on bonds will increase. O C. Bond demand will increase, bond prices will increase, and the interest rates on bonds will decrease. O D. Bond demand will decrease, bond prices will decrease, and the interest rates on bonds will increase,arrow_forward
- 28 of 38 Which of the following statements is true? O A. If the market for money is in equilibrium, then the bond market is in disequilibrium. O B. As the interest rate increases, the opportunity cost of holding money decreases. O C. An increase in the money supply could ultimately lead to the money demand curve to shift rightward. O D. A higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the left. Unsurearrow_forwardQUESTION 1 If the reserve ratio is 5% then the money multiplier is? O 20; This means that for every dollar deposited into a bank account, the money supply decreases by $20. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $20. O 2. This means that for every dollar deposited into a bank account, the money supply decreases by $2. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $2.arrow_forward4-2 Module Four Homework LO 5 166 PIE To use money growth as a short-term monetary policy instrument, a central bank must belleve that Multiple Choice Saved there is a stable link between the monetary base and the rate of inflation only money matters there is an unpredictable relationship between money aggregates and inflation the deposit expansion multiplier is volatile and unpredictablearrow_forward
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