Assume, in the 3rd quarter of 2018 in the U.S., the velocity of money was 3.08 and the M2 money supply was $1,050 million. The average prices the economy was $1.44. Based on this, what was the real GDP of the U.S. in the 3rd quarter of 2018. O a. $2,750 million O b.$1,250 million OC. $2,000 million
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- Assume, in the 3rd quarter of 2018 in the U.S., the velocity of money was 3.08 and the M2 money supply was $1,050 million. The average prices in the economy was $1.44. Based on this, what was the real GDP of the U.S. in the 3rd quarter of 2018. O a. $2,750 million O b.$1,250 millon Oc. $2,000 million O d. 52.250 million1. Which of the following will shift the investment schedule to the left? O a. Decrease in autonomous investment spending O b. Decrease in autonomous spending O c. Increase in coefficient b O d. Decrease in coefficient k 2. 3. Which of the following will not affect the money market? O a. Money supply O b. Price of one good O c. Expansionary monetary policy O d. Contractionary monetary policy Government spending does not affect the investment schedule. O a. True O b. False; shifts investment schedule to the right O c. False; makes investment schedule steeper or flatter O d. False; shifts investment schedule to the left2. Suppose that the money market can be depicted in the graph below. Interest rate (M/P)² (M³/P)⁰ (M³/P)1 H A K O B C O E L3 L1 L2 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume tha the price level does not change. The original equilibrium is at point O. Suppose that the government lowered income taxes so that consumers had more disposable income. Briefly describe how you reached that conclusion. Identify the new equilibrium point and what happens to interest rates
- Cash: $104.25 billion Checking deposits: $157.4 billion Saving accounts: $270.5 billion Small denomination time deposits: $20.3 billion Bank reserves held at the Fed: $33.0 billion Suppose that in a certain economy, the above are the only forms of money. How much M2 money is there? O a. $565.15 billion O b. $282.15 billion O c. $427.90 billion O d. $303.50 billion O e. $137.25 billion O f. $552.45 billion1. The existence of budget deficits must mean that the government is conducting an expansionary fiscal policy. * O True False 2. If a bank sells a $ 10,000 Treasury bill to the central bank, and receives a in its account with the central bank, the money supply will increase by mor $ 10,000.The addition to bank reserves will permit a multiple expansion of deposits. True False1. Suppose that the money market can be depicted in the graph below Interest rate (M/P)² (M³/P)⁰ (M³/P)¹ G K A O B C O E L3 L1 12 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume that the price level does not change. The original equilibrium is at point O. Suppose that the Federal Reserve board lowered the reserve requirement for commercial banks. Briefly describe how you reached that conclusion. ( Identify the new equilibrium point and explain what happens to interest rates.
- 16. Suppose that the Federal Reserve conducts an open market operation in which it purchases $100 in US Treasury bonds from a private saver. (a) In an economy without banks, by how much, in dollar terms, will the total money supply increase as a result of this open market operation? (b) In an economy with banks in which all members of the nonbank public immedi- ately deposit all of the currency they receive, but in which all banks engage in 100 percent reserve banking, by how much will the total money supply increase as a result of this open market operation? (c) In an economy with banks, in which all banks choose a 10% reserve ratio and in which all members of the nonbank public immediately deposit all of the currency they receive, by how much will the total money supply increase as a result of this open market operation? (d) In an economy with banks, in which all banks choose a 10% reserve ratio, but in which all members of the nonbank public hold 50% of the funds they receive as…1. Suppose that the reserve requirement for chequing deposits is 15 % and the banks donot hold any excess reserves. What is the effect on the economy’s reserves and themoney multiplier if the central bank sells $2 million of government bonds? 2. Now suppose the central bank lowers the reserves requirement to 5%, but the Savers’banks choose to hold another 5% deposits as excess reserves. State two reasons whythe Savers’ bank want to hold excess reserves. 3. Analyse briefly the impact of the overall change in the money multiplier and the moneysupply as a result of the policies implemented by the Savers’ bank.INTEREST RATE 12 10 co + 2 O 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect.
- All of the following shift the demand for money curve EXCEPT O a. an improvement in financial technology. O b. a rise in the nominal interest rate. a decrease in real GDP. O d. an increase in the price level. O e. an increase in real GDP.Explain what will happen to the money multiplier process if there is an increase in the reserve requirement? O A. An increase in the reserve requirement means that banks will be less likely to have your money when you demand it, but it would increase the money multiplier OB. An increase in the reserve requirement means that banks will be more likely to have your money when you demand it, increasing the money multiplier OC. Since a greater portion of each deposit is being lent out, the multiplier will increase. This means more loans lent and more economic growth. OD. Since a smaller portion of each deposit is being lent out, the multiplier will decrease. This means fewer loans lent and less economic growth.According to the monetary transmission process, what will be the effect of a decrease in the money supply? O a. A decrease in the interest rate, an increase in investment spending, and an increase in GDP. O b. An increase in the interest rate, an increase in investment spending, and an increase in GDP. O c. A decrease in the interest rate, a decrease in investment spending, and a decrease in GDP. O d. An increase in the interest rate, a decrease in investment spending, and a decrease in GDP. O e. An increase in the interest rate, an increase in investment spending, and a decrease in GDP.
