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- Select ALL of the following that are ways to do easy (expansionary) policy. O Raise the cost of borrowing. O Sell bonds to banks. Increase government purchases (spending). Increase bank excess reserves. Raise taxes. O Lower interest rates.List and describe thefactors that affectthe money marketand the equilibriuminterest ratea. (i).Draw a graph showing equilibrium in the money market. Carefully label all curves andaxes and explainwhy the curves have the slopesthey do.(ii). Using the graph you prepared in a(i), illustrateand explain what happens when the Central Bankdecreases the money supply.(iii).When the Central Bankdecreases the money supply, theequilibrium level ofincome changes. Illustrate andexplain how
- 12 MD 240 Quant ity of money 160 200 100 120 140 Ouantity of investment Refer to figure above to answer this question. If the money supply is equal to 180, what are the values of the interest rate and investment spending? 12 percent and 110. 12 percent and 120. 4 percent and 150. 8 percent and 130. 10 percent and 120. Rate ol interestAssume that the reserve requirement is 20 percent.Also assume that banks do not hold excess reservesand that the public does not hold any cash. The Feddecides that it wants to expand the money supply by$40 million.a. If the Fed is using open-market operations, will itbuy or sell bonds?b. What quantity of bonds does the Fed need tobuy or sell to accomplish the goal? Explain yourreasoning.Explain whether each of the following eventsincreases or decreases the money supply.a. The Fed buys bonds in open-market operations.b. The Fed reduces the reserve requirement.c. The Fed increases the interest rate it pays onreserves.d. Citibank repays a loan it had previously takenfrom the Fed.e. After a rash of pickpocketing, people decide tohold less currency.f. Fearful of bank runs, bankers decide to hold moreexcess reserves.g. The FOMC increases its target for the federalfunds rate.
- what will happen to the interest rate vs quantity of money if the federal decides to decrease money suppy in response to concerns over inflationWhich of these statements are true? The discount rate is normally equal to the federal funds rate. The federal funds ratre is normall higher than the discount rate. The Federal Funds rate is the rate that banks are charged when they borrow from the Fed. O The discount rate is normally higher than the federal funds rate.If the Fed wants to lower the interest rate, what should they do with the money supply? What tools do they have toincrease/decrease the money supply and what should they do to lower the interest rate?
- if people hold all money as demand deposits and banks maintain a reserve raitio of 12.5 percent what's the quantity of moneySelect the correct choice and correct match. A. increasing or decreasing the money supply B. people buy bonds, bond prices rise, and the interest rate falls C. money shortage, people sell bonds, increase the interest rate D. money surplus, people buy bonds, decrease the interest rates E. people sell bonds, bond prices fall, and interest rates rise C D A B E 1. excess money demand 2. excess money supply 3. The Fed can increase or decrease the equilibrium interest rate by 4. increase in the money supply 5. decrease in the money supplyWhen the Fed conducts open-market purchases, a. it buys Treasury securities, which decreases the money supply. b. it lends money to member banks, which decreases the money supply. c. it buys Treasury securities, which increases the money supply. d. it borrows money from member banks, which increases the money supply.