Exam_2_Practice - Suppose the Federal Reserve wants to...

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Suppose the Federal Reserve wants to lower interest rates to increase money supply to at least $5,000. The money supply is currently $2,000 and the reserve requirement is 10%. Which strategy should the Fed use? (1) decrease reserve requirement to 4% or (2) buy government bonds so that the initial amount of reserves increases by $300? Suppose you have to pay back a loan in full of $4,000 5 years from now. The current interest rate on a 5-year bond is 6%. How much money would you have to save today to
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Unformatted text preview: be able to pay back your loan in full 5 years later? Suppose a friend of yours offers you a deal. You give her the amount that you were going to save by purchasing the bond, and she’ll repay you five years later 120% of what she borrowed. Should you still buy the bond? What percent of the amount saved would your friend have to return in order for you to save with her instead of buying the bond that compounds annually?...
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