1. The opportunity cost of holding assets as money aa Aa Suppose you've just inherited $10,000 from...

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1. The opportunity cost of holding assets as money aa Aa Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 ina non-interest-bearing checking...

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1. The opportunity cost of holding assets as money aa Aa Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 ina non-interest-bearing checking account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a U.S. Treasury bond. Suppose the interest rate on the bond is 7% per year. What would be the opportunity cost of holding the $10,000 as money? $654 per year $7 per year $10,000 per year $280,000 per year ooo00 $700 per year Now, suppose that the interest rate fell to 4% per year. This would cause the opportunity cost of holding the $10,000 as. money to to per year. What does the previous analysis suggest about the market for money? © The supply of money is independent of the interest rate, © The quantity of money demanded increases as the interest rate falls. © The quantity of money demanded decreases as the interest rate falls. DROP DOWN OPTIONS: e Increase or decrease e $4, $40,000, $10,000, $400 Monetary Policy Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXet 11:00 PM 2, Various determinants of money demand ha Aa The money market for an economy is shown on the follawing graph. Suppose that a government regulation is passed that bans the payment of interest on checking accounts. Show the impact of this change on the money market, Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. INTEREST RATE [Percent) & MS QUANTITY OF MONEY As a result of this change, the economy's demand for money , its equilibrium interest rate , and its equilibrium quantity of money DROP DOWN OPTIONS: e Remains unchanged, decreases or increases Remains unchanged, decreases or increases Remains unchanged, decreases or increases Remains unchanged, decreases or increases Remains unchanged, decreases or increases Remains unchanged, decreases or increases Again, the money market for an economy is shown on the graph that follows. Suppose that instead of the previous scenario, a harsh recession hits the economy. Show the impact of this change on the money market. Tool tip: Click and drag one or both of the curves, Curves will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. INTEREST RATE [Percent| é QUANTITY OF MONEY As a result of this change, the ecanomy's demand far money , and its equilibrium quantity of money , its equilibrium interest rate Monetary Policy ‘Graded Assignment | Read Chapter 15 | Back to Assignment Bue Sunday XXXXXXXXXXat 11:00 PM 3. The theory of liquidity preference and the downward-sloping aggregate demand curve na (Aa The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Reserve Bank, Assume that the Reserve Bank fixes the quantity of money supplied. Suppose the price level increases fram 150 to 200. Shift the appropriate curve on the graph ta show the impact of an increase in the overall price level. Tool tip: Click and drag the appropriate curve. Curves will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. INTEREST RATE [Percent] Money Supply a 2 4 4 a 10 12 QUANTITY OF MONEY Billions of dollars! The higher price level shifts the money curve to the . After the increase in the price level, the quantity of money demanded at the initial interest rate of 3% will be than the quantity of money supplied by the Reserve Bank. People will try ta their money holdings. In order ta da so, peaple will bonds and other interest-bearing assets, and bond issuers will find that they interest rates until the money market reaches its new equilibrium at an interest rate of DROP DOWN OPTIONS: e Supply or demand Right or left Greater or less Decrease or increase Buy or see Have to offer higher or can offer lower Fill in the blank The change in the interest rate that you found previously will cause residential and business investment spending ta ' leading ta in the quantity of output demanded in the econamy. The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price lewel by moving the point along the curve or shifting the curve. Tool tip: Click and drag either the curve or the dot, whichever applies. Either element will snap into pasition, so if you try ta move it and it snaps back to its original position, just try again and drag it a little farther. AGGREGATE PRICE LEVEL XXXXXXXXXXAggregate Demand XXXXXXXXXXREAL GOP [Billions ef dollars) DROP DOWN OPTIONS: e Rise or Fall e Adecrease or an increase Monetary Policy Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXat 11:00 PM 4. Equilibrium and disequilibrium in the money market na Aa Suppose the following diagram represents the money market in the United States. Assume the money market is currently in equilibrium, as indicated by the grey star. INTEREST RATE [Percent] 40 New Curve Money Supply New Equilibrium -* 6 O7 O88 O8§$F XXXXXXXXXXQUANTITY OF MONEY (Trillions ef dollars) |Help | | Clear All| Suppose the Federal Reserve ("the Fed") announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by the . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (X symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. In carrying out monetary policy to have the required impact on the target interest rate that is previously described, the Fed made an open-market of Treasury bills, The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of bonds demanded , which méans that bond issuers sell bonds. This process continues until the new equilibrium interest rate is achieved. DROP DOWN OPTIONS: e Increasing or decreasing Money supply or money demand Purhase or sale Less or more Increases or decreases Must raise the interest they pay to or can issue bonds at lower interest rates and still Monetary Policy Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXat 11:00 PM 5. Recent Federal Reserve interest rate policy a Aa & The chart below shows the target federal funds rate set by the Federal Open Market Committee and the effective daily federal funds rate over several years. Recent Federal Reserve Interest Rate Policy Which of the following best explains the paths taken by the rates during the first three years shown in the chart? © The Federal Reserve was responding to inflationary pressures that might threaten the economy. @ The Federal Reserve was acting in response to the threat of a financial crisis. © The Federal Reserve believed that pressures on inflation and unemployment were fairly balanced. Monetary Policy ‘Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXat 11:00 PM 6. Changes in the money supply ha Aa Suppose the following diagram represents the money market in the United States, and suppose that the United States is a closed econamy [that is, am economy that does not interact with other economies in the world). The money market Is currently in equilibrium at an interest rate of 6.00%, and a quantity of money equal to 41 trillion, as indicated by the grey star, INTEREST RATE [Percent] 3.0 New MS Curve Money Supply 75 70 New Equilibrium -x XXXXXXXXXXMoney 55 emand XXXXXXXXXXo4 O=F OF8 OF WO XXXXXXXXXXQUANTITY OF MONEY (Trillions of dollars) |Help.) | Clear All) Suppose the Fed announces that it is lowering its target interest rate by 25 basis paints, or 0.25%. To do this, the Fed will use apen-market operations to the public in order to money. the Use the green line (triangle symbols) on the previous graph te illustrate the effects of this policy by placing the new money supply curve (MS) in the correct location. Place the black point (% symbol) at the new equilibrium interest rate and quantity of money. DROP DOWN OPTIONS: e Sell bonds to or buy bonds from e Decrease or increase e Demand for or supply of Suppose the following graph shows the aggregate demand curve for the U.S. economy. The Fee's policy of targeting @ lower interest rate will the cost of borrowing, causing Investment spending to and the quantity of output demanded to at each aggregate price level. Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. Tool tip: Click and drag the curve. The curve will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. AGGREGATE PRICE LEVEL Aggregate Demand REAL GOP DROP DOWN OPTIONS: e Increase or reduce e Decrease or increase e Increase or decrease Monetary Policy Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXat 11:00 PM 7. Monetary policy in the income-expenditure model and in practice Aa Aa oe The figures below show the impact of the two types of monetary policy in the Income-expenditure model, Figure A SEs, Figure B aggregate 45-degree line spending ee AE, %-—"% Real GOP Vaoaere Reat GOP Which figure above shows the correct Impact of the monetary policy that the central bank would pursue if its primary concern was excessive unemployment? OQ Figure B O Figure A When the primary concern of the central bank is excessive unemployment, it should pursue monetary policy that will cause real GDP to DROP DOWN OPTIONS: e Answer multiple choice question e An expansionary or a contractionary e Increase or decrease The charts below show the variation in several economic measures in comparison with changes in the federal funds rate for 23 years in the recent past. Use the charts to answer the question below. Which of the following conclusions can be reached from Figures (a), (b), and (c) above? Check all that apply. (1 The Taylor rule for the federal funds rate tracks U.S. monetary policy better than does the output gap. (1 The inflation rate tracks U.S. monetary policy better than does the Taylor rule for the federal funds rate. (1 The federal funds rate is usually low when the inflation rate is low. Monetary Policy ‘Graded Assignment | Read Chapter 15 | Back to Assignment Bue Sunday XXXXXXXXXXat 11:00 PM 8. The Taylor rule for monetary policy aa Aa The Taylor rule for monetary policy, which is a rule for setting the federal funds rate, does a good job of tracking U.5. monetary policy. According to the Taylor rule, if both the real interest rate and the desired inflation rate are 2%, the federal funds rate should be set according to the following equation: Federal Funds Rate = 1% XXXXXXXXXXx Inflation Rate XXXXXXXXXX ~ Output Gap) Recall that the federal funds rate is the interest rate banks charge each other for short-term (overnight) loans. The inflation rate is measured by changes in the consumer price index and the formula for the output gap is: (Actual GDP = Potential GDP) Potential GDP. Therefore, the output gap is positive when actual GDP exceeds potential GDP and negative when actual GDP is less than potential GDP. For example, when the inflation rate is 3% and the output gap is 1%, the Taylor rule estimates that the federal funds rate should be 1% XXXXXXXXXXx 3% XXXXXXXXXXx 1%) = 1% + 4.5% + 0.5% = 6%. Suppose that the U.S, economy is experiencing an inflation rate of 4.70% and an output gap af 2.70%. In this situation, the Taylor rule for monetary policy estimates a federal funds rate of Instead of the previous scenario, suppose that the U.S. economy is experiencing an inflation rate of 0.60% and an output gap of 6.00%). In this situation, the Taylor rule for monetary policy estimates a federal funds rate of The Taylor rule for monetary policy implies that if both the inflation rate and the output gap rise, then the federal funds rate should DROP DOWN OPTIONS: e 10.40%, 1.35%, 9.40%, 7.05% e 4,00%, 0.90%, 7.40%, 5.90% e rise or decline Monetary Policy Graded Assignment | Read Chapter 15 | Back to Assignment Due Sunday XXXXXXXXXXat 11 9. Inflation targeting and embedded inflation aa Aa Which of the following statements about inflation targeting are correct? Check all that apply. (1 Inflation targeting increases economic uncertainty about a central bank's objective, () The Federal Reserve often seems to act as if it implicitly has an inflation target range centered around 2%, (1) Inflation targeting makes central bankers accountable because actual inflation can be compared to the announced target. The following graph shows the U.S. unemployment rate between 1952 and 1984, along with five vertical bars representing the dates of selected Federal Open Market Committee (FOMC) meetings. The U.S. Unemployment Rate and Selected FOMC Meetings PF PPLE PEEP ESI ELIE SK Year Sources: Guresu of Labor Statistics; Christina O. Romer and Oavid H Fomer. “Monetary Policy Matters.” Jounal of Monetary Economics 24 (Auguat 1994): XXXXXXXXXXWhich of the following statements correctly describe why the five FOMC meetings represented by the vertical lines were important events? Check all that apply. (O According to researchers Romer and Romer, these were meetings in which the FOMC decided that it wanted a recession. OO For the periods in which these meetings took place, the FOMC needed to create a recessionary gap in the economy. Answer multiple choice above 10. Monetary policy, short-run adjustment, and long-run adjustment in the AD-AS model as Aa & The following graphs show an economy that starts in a long-run macroeconomic equilibrium and the possible paths it may take to reach its new long-run equilibrium after a change in the money supply. Look carefully at the subscripts on each curve and the path traced by the arrows, and then answer the questions below. Figure A AGGREGATE PRICE LEVEL Figure B AGGREGATE PRICE LEVEL LRAS XXXXXXXXXXa 10 REAL GOP (Trittions of $) Figure C AGGREGATE PRICE LEVEL LRAS SRASI c SRAS? ' a : ADI 1 y > an2 ll ees Q 2 ‘iS 4 VA 19 REAL GDP [Trillions of $} XXXXXXXXXXREAL GDP (Trillions of $1 Figure D AGGREGATE PRICE LEVEL LRAS 9 2 SRK FE 10 REAL GOP (Triltions of $] Which graph best represents the short-run and long-run adjustment to a sizable increase in the money supply? @ Figure C © Figure B O Figure o © Figure A The long-run effect occurs because will » which will cause the SRAS curve ta shift Suppose that the money supply were to increase by 40%. In the long run, the result of this change would be that the price level would by 405%, while real GDP would and the Interest rate would DROP DOWN OPTIONS: e Answer multiple choice question Nominal wages, investment Decrease or increase Rightward or leftward Decrease or increase Decrease, be unaffected, increase Increase, decrease, be unaffected Graded Assignment | Read Chapter 15 | Back to Assignment Monetary Policy 11. The effect of Fed action (or inaction) in the AD-AS model Aa Aa Consider the following graph. The economy is currently producing at point A (grey star symbol), which corresponds to the intersection of the AD, and SRAS, curves. The Federal Reserve (the Fed) is considering whether to intervene in an effort to bring the economy back to its potential. AGGREGATE PRICE LEVEL Tet LRAS No Intervention - = XXXXXXXXXXIf Fed Intervenes XXXXXXXXXXid oi XXXXXXXXXX1h REAL GOP [Trillions of dollars) Help} (Clear All| According to the graph, the potential output of this ecanamy is Since real GOP is currently $12 trillion (as shown by point A), this level of potential output means there is. currently of Along SRAS;, wages would have been negotiated based on an expected price level of . Since the actual price level at point Ais 135, this means that real wages are had been negotiated, which will unemployment. If the Fed does not intervene, these labor market conditions would cause nominal wages to » shifting the curve to the - Eventually, the economy wauld reach @ new long-run equilibrium. On the previous graph, place the red point (cross symbol) at the mew lang-run equilibrium output and price level if the Fed does not intervene. (Assume there are no feedback effects on the curve that does not shift.) DROP DOWN OPTIONS: e $10 trillion, $16 trillion, $11 trillion, $14 trillion, $12 trillion Inflationary gap, a recessionary gap $5 trillion, $3 trillion, $4 trillion, $1 trillion, $2 trillion 140,130 or 135 The same as, lower than, higher than Increase or decrease Increase or decrease SRAS, AD, LRAS Left or right Due Sunday XXXXXXXXXXat 11:00 PM Increase or decrease Increase or decrease Increase or decrease SRAS, AD, or LRAS Left or right Place the X symbol on the graph Unemployement or inflation Unemployment or inflation

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Answered Same Day Dec 20, 2021

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Robert answered on Dec 20 2021

135 Votes

DROP DOWN OPTIONS:
Option E
· Increase or decrease
· $4, $40,000, $10,000, $400
· Option B, A
DROP DOWN OPTIONS:
· Remains unchanged, decreases or increases
· Remains unchanged, decreases or increases
· Remains unchanged, decreases or increases
· Remains unchanged, decreases or increases
· Remains unchanged, decreases or increases
· Remains unchanged, decreases or increases
DROP DOWN OPTIONS:
· Supply or demand
· Right or left
· Greater or less
· Decrease or increase
· Buy or see
· Have to offer higher or can offer lowe
· Fill in the blank 3.5%
DROP DOWN OPTIONS:
· Rise or Fall
· A decrease or an increase
DROP DOWN...

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1. The opportunity cost of holding assets as money aa Aa Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 ina non-interest-bearing checking...

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