One of the major roles of the central hank is to influence monetary variables such as inflation, foreign exchange rates, as well as boosting economic activity through the control of money supply in the economy." In 'relation to above role, explain how the central hank can achieves this objective.
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One of the major roles of the central hank is to influence monetary variables such as inflation, foreign exchange rates, as well as boosting economic activity through the control of money supply in the economy." In 'relation to above role, explain how the central hank can achieves this objective.
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- Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…Suppose the Federal Reserve purchases $1,000,000worth of foreign assets.a. If the Federal Reserve purchases the foreign assetswith $1,000,000 in currency, show the effect of thisopen market operation, using T-accounts. Whathappens to the monetary base?Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.
- As a manager of a firm, you are concerned about the rise of inflation rate from 3 to 5 percent(annualized) over the last four months despite the growth of the economy.a. Given the above situation should BNM adjust the monetary policy? Is so, explain theappropriate monetary policy BNM would use. Be sure to discuss how the monetarypolicy would be able to manage inflation while managing economic growth.Which of the following will not affect the money market? O a. Money supply O b. Price of one good c. Expansionary monetary policy O d. Contractionary monetary policyQUESTION 3 How are purchases or sales of foreign currency by a central bank are related to monetary policy? O A. a purchase of foreign currency will increase money supply B. a purchase of foreign currency will reduce the nominal exchange rate O C.a purchase of foreign currency will reduce money supply O D.a purchase of foreign currency will increase the nominal exchange rate
- Question 4Suppose a country’s inflation level is higher than desired, and unemployment levels arelower than expected – the central bank decides that the economy is ‘overheated’ andattempts to use the appropriate monetary policy to deal with the situation. Describe,with the help of the appropriate figure, how a central bank might go about implementingsuch monetary policy, the subsequent effects this has on interest rates, the quantity ofmoney in the market, and the process through which this affects the level of expenditurein the economy.When monetary authorities are deemed as "conservative," they are more likely to implement policies that OA. increase unemployment. B. decrease inflation. C. decrease unemployment. O D. strengthen the value of their currency.True-False with explanationA monetary expansion only changes inflation on the long run
- Describe the difference betweenan exogenous and an endogenous theory about the money supply.In your view what importantdifferences between the twotheories exist?How can a central bank decrease the money supply? O a. By selling securities O b. All of the answers are correct O c. By decreasing the target overnight interest rate O d. By engaging in "quantitative easing"Recently the economic conditions of the country have been weakened. Even though inflation has not increasedin the last year. Price of crude oil on the international market has increased by 15% last month. As a measurein controlling inflation in the country, the Monetary Policy Committee (MPC) of the Bank of Ghana has decidedto restrict the supply of money and increase the target policy rate by 100 basis points (1%):a. As a finance student, do you support the decision made by the monetary committee? Explain b. Explain how prices of debt securities would change in response to this policy? c. Assume the Monetary Policy Committee decides to reduce the target policy rate by 1.5% today and thisdecision is not backed by any financial market expectations. Will this change in policy directive affectyields paid by firms when they issue corporate bonds? d. In the last month, the 91day treasury bill rate (risk free rate of return) has increased from 10% to 15%per annum. What are the potential…