Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For part A below, A) The central bank performs an open market operation and sells $10 million in bonds. i) Conceptually explain the effect of the policy on the money supply. ii) Calculate the change in M1 given our assumptions. iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the new policy. iv) When the money supply changes, list a chain of events to make a prediction using the Aggregate Demand / Aggregate Supply framework about the change in real output in the short

Your boss, the Chair of the Central Bank of Zargadee, seeks your advice about monetary policy. For part A below, A) The central bank performs an open market operation and sells $10 million in bonds. i) Conceptually explain the effect of the policy on the money supply. ii) Calculate the change in M1 given our assumptions. iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the new policy. iv) When the money supply changes, list a chain of events to make a prediction using the Aggregate Demand / Aggregate Supply framework about the change in real output in the short

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter28: Monetary Policy And Bank Regulation

Section: Chapter Questions

Problem 11RQ: List the three traditional tools that a central bank has for controlling the money supply.

See similar textbooks

Similar questions

Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the amount of cash in Bank A, carefully following all numeric instructions.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate this economy's monetary base, carefully following all numeric instructions.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the (economy-wide) currency ratio, carefully following all numeric instructions. Do not convert the ratio into percent. In other words, if you get k of 0.99, enter only 0.99 in the blank.
Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the "real-world multiplier," carefully following all numeric instructions.
Suppose the Fed buys $1 million of bonds from theFirst National Bank. If the First National Bank and allother banks use the resulting increase in reserves topurchase securities only and not to make loans, whatwill happen to checkable deposits?
Sea shell have been used as money is West Africa. This is an example of Seçtiğiniz cevabın işaretlendiğini görene kadar bekleyiniz. Soruyu boş bırakmak isterseniz işaretlediğiniz seçeneğe tekrar tiklayımız 4,00 Puan fiat money. B legal money. token money. commodity money. D Soru Bog Brat Which of the following is not a form of commodity money? Seçtiğiniz cevabın işaretlendiğini görene kadar bekleyiniz. Soruyu boş bırakmak isterseniz işaretlediğiniz seçeneje tekrar tiklaynız 4,00 Puan A checks B cigarettes precious stones all of the above Bu Soryu Bog arak
if people hold all money as demand deposits and banks maintain a reserve raitio of 12.5 percent what's the quantity of money
Suppose a researcher discovers that a measure of thetotal amount of debt in the U.S. economy over thepast 20 years was a better predictor of inflation andthe business cycle than M1 or M2. Does this discoverymean that we should define money as equal to the totalamount of debt in the economy?
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…
Consider the tolowing stuations a Bank reserves are 5100, he pubic hoids 5200 in curency, and the desired reserve-deposit ratio is 025 Find deposits and the money supply Instructions: Entar your respanses as iager values Deposits Money supoly b. The money supply is $500 and currency held by the putic equals bark reserves The desired reserve-depost ratio s0 25 Find currency held ty the pubic and bank reserves. Instructione Emer your respornen iteger valuen Currency hekd by the putic Bank reserves
Nobel Prize winner Franco Modigliani found that themost important transmission mechanisms of monetarypolicy involve consumer expenditure. Describe how atleast two of these mechanisms work
Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019.Classic BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 1,000 Deposits 3,000Securities 2,000 Equity 7,000Loans & Advances 1,000Property, Plant and Equipment 6,000 .10,000 10,000 Prudent BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 600 Deposits 2,500Securities 1,500 Equity 4,400Loans & Advances 800Property, Plant and Equipment 4,000 .6,900 6,900Assume a required reserve ratio of 10%.(a) What is the amount of excess reserves in this commercial banking system? (b)What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded? (c) Determine the stock of broad money supply assuming the non-bank public holds…