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Which of the following statements is true?
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- Which one of the following statements is true? Group of answer choices The total supply of money is smaller than the currency base. Banks can alter the total supply of money through their lending/borrowing activity. A central bank can control the total supply of money without caring too much about private banks’ activity, especially during credit crises. Bernanke can directly take over private banks.The money demand curve is downward slopping because Group of answer choices The law of demand holds. People will hold more money in hands when the interest rate is high. The Federal Bank can control the money demand. Interest rate can be viewed as the opportunity costs of holding money.If banks start paying higher interest rates on checking accounts, we would expect, assuming everything else held equal, Group of answer choices a) the demand for money to become more sensitive to changes in the interest rate. this is not correct b) the demand for money to become horizontal. c) the relationship between interest rates and the demand for money to be unaffected. d) the demand for money to become less sensitive to changes in the interest rate. e) a decrease in the supply of money.
- When the central bank lowers the reserve requirement on deposits: a) the money supply increases and interest rates decrease. b) the money supply decreases and interest rates increase. c) the money supply and interest rates increase. d) the money supply and interest rates decrease.When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: a) a quantitative easing policy. b) a expansionary monetary policy. c) a contractionary monetary policy. d) a loose monetary policy.Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…
- What is the main argument for having a Central Bank independent from the government for the purposes of monetary policy? Select one: a. An independent Central Bank would have more resources available to devote towards implementing monetary policy b. An independent Central Bank would be more knowledgeable about the state of the economy. Consequently, the Central Bank would be better suited to implementing monetary policy c. The Central Bank is more credible in its inflation and cash rate targets. Consequently, inflation expectations will adjust appropriately to monetary policy announcements d. Having an independent Central Bank prevents any economic trade-offs when making monetary policy choicesTrue or False? In an assigned reading, Milton Friedman indicated that he agreed with John Maynard Keynes's explanation of the causes of the Great Depression. True False As discussed in class, which of the following was argued by monetarists of the 1970s? in a free market economy, central banks can never effectively manipulate money supply, because lending activity is subject to rapid changes an expansion of the money supply that is less than the growth of output during the same period will generally result in deflation O effects of changes in money supply are seen in output before they are seen in prices central banks should focus on minimizing the legal interest rates paid to depositors, as ensuring the safety of banks was the most important goalDescribe a situation where a central bank would want to implement expansionary monetary policy. Describe a situation where a central bank would want to implement contractionary monetary policy. Suggest a policy tool that the central bank (e.g., the Federal Reserve) can use for one of the above situations and explain how that policy would alleviate the situation.
- An increase in the money supply occurs when Question 16 options: the price level falls. the interest rate increases. the Fed makes open-market purchases. money demand increases.When the Fed targets the amount of money in the economy, interest rates become more variable. True FalseThe Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury securities, usually Treasury bills. The increase or decrease of money in circulation helps the Fed to control inflation or deflation. This has an effect on your disposable income. Research the Federal Reserve system and money supply, then answer the following questions. Under what conditions would the Fed choose to decrease the money supply, how would it do so, and what is the goal of doing so? How does the Fed factor inflation into its actions?
