Explain what would happen in the long run

Reference no: EM131736707

Assignment

Question 1: For each of the following reserve requirements, calculate the simple money multiplier (i.e., the money multiplier when people do not hold any currency), and then re-calculate the money multiplier for each case if the ratio of individuals' currency holdings to their deposits is 10%. Show all your calculations.
a) 15%
b) 20%

Question 2: Suppose the current money supply is $20,000. The reserve requirement is 0.10. The Fed wants to decrease the money supply by $1000. Assume that banks do not hold excess reserves and individuals hold no currency.

Determine the following:

a) the money multiplier

b) the monetary base

c) the amount by which the Fed must change the reserve requirement to achieve the stated desired change in the money supply. (What should be the new reserve requirement ratio?)

d) If the Fed decides to use an open market operations tool instead, would it have to buy or sell bonds to achieve the stated desired change in the money supply, and by how much would it need to buy or sell bonds?

Question 3: Suppose that the money market in Eastlandia is initially in equilibrium and the central bank decides to increase the money supply. Using a diagram for money market, explain what will happen to the interest rate in the short run.

Question 4: An economy is in long - run macroeconomic equilibrium with an unemployment rate of 7% when the government passes a law requiring the central bank to use monetary policy to lower the unemployment rate to 4% and keep it there. How could the central bank achieve this goal in the short run? What would happen in the long run? Illustrate with a diagram.

Reference no: EM131736707

Questions Cloud

What extent should justice take precedence over stability : How does one judge the merits of a nation's demand for "self determination" as seen in the Bosnian case? To what extent should justice take precedence over

What you have learned about yourself and what motivates : What types of benefits you would offer your employees if you were an employer seeking to maximize your employee productivity

Full amount due within five business days : If he does not pay the full amount due within five business days, Eli will arrange for the "destruction of Reed's good credit rating."

Describe and discuss some of the most significant issues : Describe and discuss some of the most significant issues associated with the separatist struggles that occurred with the collapse of Yugoslavia

Explain what would happen in the long run : How could the central bank achieve this goal in the short run? Explain what would happen in the long run? Illustrate with a diagram.

What is her potential liability : If Brenda did not engage in intentional fraud but was negligent, what is her potential liability? Explain your answer thoroughly.

Beverage ingredients from other suppliers : In the second year of the contract, Jitter Juice protests that this arrangement violates antitrust law.

Provide an in-depth analysis of the product life cycle : Provide an in-depth analysis of the Product Life Cycle. Historical background.

Potential solutions and to motivate change : Discuss how critical thinking was applied to come up with potential solutions and to motivate change. This is about JC Penney.

User Account

All Pages