Homework_5 - Points Awarded Points Missed Percentage 94.00...

• Homework Help
• 35
• 99% (194) 193 out of 194 people found this document helpful

This preview shows page 1 - 8 out of 35 pages.

Points Awarded94.00Points Missed6.00Percentage94.0%1.Money Supply ProblemYou are hired by the Chair of the Federal Reserve to manage the tradingdesk at the New York Fed and the Chair tells you that he wants you toincrease the money supply (M1) by 33 percent. They warn you to becareful because in these uncertain times, the money multiplier tends tobecome very unstable. They suggest that you stay ‘closely connected’with the banking sector and then gives you a list of phone numbers to doso. Note that in this problem we are targeting the growth rate of M1.Reserve Market Initial Conditions (Scenario A)rr/D= .10C = 400 bD = 2000 bER = 0 (not a typo)M = C + DUse the initial conditions IN SCENARIO A above to answer #1-3.What is the MB?A)600B)700C)1060D)2400
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Chapter AA / Exercise 9
Microeconomics
Arnold
Expert Verified
E)3200Feedback:MB = C + RR + ER = 400 + 200 + 0 = 600 = MBPoints Earned:3.0/3.0Correct Answer(s):A
2.What is the money multiplier?
3.What is the money supply? Use mm x MB to calculate this.
4.Scenario B:So you decide to inject \$100 billion in reserves via open marketpurchases with phone in hand. Recall, the Chair said to watch that multiplier and soyou start making some calls. Just as you suspected, the banks aren’t making anyloans, that is, they are sitting on all \$100 billion in excess reserves.
Given these new conditions from SCENERIO B, answer #4-6.What is the MB?
Points Earned:3.0/3.0Correct Answer(s):B5.What is the money multiplier?Round to 3 decimal places.A)3.429B)
4.333C)4.012D)5.413Feedback:MM = [(C/D + 1) / (C/D + RR/D + ER/D)] = [(.20 + 1) / (.20 + .10 + .05]= 3.42857 = MMPoints Earned:3.0/3.0Correct Answer(s):A
6.What is the money supply? Use mm x MB to calculate this andRound to thenearest whole number.
7.Now the Chair calls and asks you how things are going and you tell him/her that youinjected \$100 billion in the systembut it didn’t work because banks areholding on to the ER (the banks never loaned them out, they hoardedthem instead).Scenario C:Now you get some calls from bankers and you learn that there hasbeen some ‘internal substitution’ within the M1 money supply. In particular,households prefer tohold more currency relative to deposits, i.e., the currencyto deposit ratio rises. The new numbers are as follows:rr/D= .10C = 800 bD = 1600 bER =100 bUse the new conditions from SCENARIO C to answer #7-9.What is the MB?
2400E)3200Feedback:MB = C + RR + ER = 800 + 160 + 100 = 1060 = MBPoints Earned:3.0/3.0

Course Hero member to access this document

Course Hero member to access this document

End of preview. Want to read all 35 pages?

Course Hero member to access this document

Term
Fall
Professor
staff
Tags
Correct Answer, Federal Reserve System, Federal Reserve Banks
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
The document you are viewing contains questions related to this textbook.
Chapter AA / Exercise 9
Microeconomics
Arnold
Expert Verified