Assuming that the money multiplier is now stable ie the value you found in 8

# Assuming that the money multiplier is now stable ie

This preview shows page 6 - 9 out of 22 pages.

Assuming that the money multiplier is now stable (i.e., the value you found in #8), you need to figure out what to do, in terms of open market operations, to hit the 33.33 percent money growth rate desired by the chair and the FOMC. To do this you must first identify the target money supply. Then you will be able to calculate the needed monetary base and finally you will be able to calculate the amount of open market purchases/sales. Work through these steps in #10 – 12.Your goal is to increase the money supply by 33.33%. Use the Money supply you found in #9 and increase it by 33.33%, then round to the nearest whole number. The target money supply is:1060600Correct!32002400700IDENTIFY THE TARGET MONEY SUPPLY, CALL IT M* = (4/3) x 2400 = 3200 = M*Question 114 / 4 ptsThe money multiplier is stable at the value you found in #8. Use it and your answer from #10 to calculate the appropriate monetary base. Round to thenearest whole number.
106024001200Correct!14131300FEEDBACK: WE KNOW THE MONEY MULTIPLIER IS STABLE AT 2.2642 = MM SOTHE ONLY UNKNOWN IS THE APPROPRIATE MONETARY BASE (CALL IT MB*) AND THAT IS CONVENIENT SINCE YOU CAN INFLUENCE THE MB THROUGH OPEN MARKET OPERATIONS3200 = 2.2642 X MB*MB* = 1413.302Question 124 / 4 ptsNOTE: no graphing was required for Part 1. However you should be comfortable graphing the monetary base graph and the money supply graph for part 1. These graphs will be shown in the solutions so that you can check your understanding.An open market _______of ______ must occur to reach the monetary base found in #11 above (hint: take your answer from #11 and subtract your answer from #7).sale, 353Correct!purchase, 353sale, 800
purchase, 800SINCE THE ‘OLD’ MB = 1060, THEN YOU NEED TO CONDUCT SOME MAJOR OPEN MARKET PURCHASES TO RAISE MB FROM 1060 TO 1413, OPEN MARKET PURCHASES = 353. NOTE: no graphing was required for Part 1. However you should be comfortable graphing the monetary base graph and the money supply graph from this question. A graphed solution is shown below so you can check your work. Here the graph of the Monetary Base is on the left and the graph of the Money Supply on the right. Point A shows the conditions that prevailed in part a), point B shows the conditions that prevailed in part b), point C shows the conditions that prevailed in part C) and finally point D shows the conditions that prevailed in part D). Note that interest rates (the variable on the vertical axis) aren’t labeled, since there are none in this problem.Error! Filename not specified.Part 2: 9 questions at 3 points each for a total of 27 pointsFor this part you will need to download and print GRAPHING TEMPLATE FOR PART 2For questions 14, 16, 19 and 21, all of your answers will be submitted using the same graphing template. When those questionsare completed, scan the graph and use the "Upload File" button under question #22 to submit your graph.

#### You've reached the end of your free preview.

Want to read all 22 pages?

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern