How would your action and those of other banks managers end up affecting the money supply?

1. What do you think causes changes in each of t Show more cdould i get help with these short answer problems? 1. What do you think causes changes in each of the expenditure (spending) components of GDP thereby causing changes in our economys output employment and income levels? 2. According to an article published in Business Week in October 2002 The stock market plunge is weighing heavily on the both businesses and consumers. Why would a decline in stock prices weigh heavily on business and consumers? What were the consequences of this to for the economy? 3. Explain how an increase in oil prices can cause recession. 4. Can a recession continue in the long-run? Explain why or why not using the aggregate demand and aggregate supply model 5. When unemployment rate fell to 4% some economists became concerned that inflation would increase explain their concern. 6. Is money the only store of value? If not give some other examples of stores of value. Must money be a store of value to serve its function as a medium of exchange? 7. What does it mean to say that money is liquid? Explain why M1 is more liquid than M2 8. Imagine that you have just received $4000 that you have to hold as either an M1 asset or M2 asset. What are the costs and benefits of holding the $4000 as an M1 asset rather than as an M2 asset? Explain. 9. An article in the Economist magazine observes: One big reason to tie money to a commodity standard would be to limit its growth in order to protect against runaway inflation. a. Why would tying money to a commodity limit the growth of the money supply? Would doing so limit inflation? Explain Source: on Gold and Golden Ages. Economist September 11 2012 10. Whenever currency is deposited into a commercial bank cash goes out of circulation and as a result the supply of money is reduced. Do you agree? Explain why or why not. 11. Deposits are the lifeblood of banks. Bank of America for example had nearly $1 trillion in deposits at the end of March representing nearly half of its total liabilities. Citi Group and Wells Fargo held around $800 billion in deposits. Briefly explain the statement deposits are the lifeblood of banks 12. Suppose someone keeps $100 in cash under her pillow. One day she takes it out and deposits it in a checking account. Does this action directly affect the size of the money supply? Explain why or why not. Does this action eventually lead to a change in the money supply? Explain why or why not 13. Milton Friedman believed that the Fed should control the money precisely. In the 1960s he proposed that the required reserve ratio be raised to 100 percent. How would this policy improve the Fed control of the money supply? What will be the policy drawbacks? Explain 14. The natural rate of unemployment varies over time with changes in demographics the structure of the economy and government policies. For its goal of low unemployment why would it be crucial for the Federal Reserve to be aware of the variations in the natural rate of unemployment? Explain 15. The United States has a fractional reserve banking system. Why do most depositors seem to be unworried that banks loan out most of their deposits? 16. Suppose that you are a bank manager and the Fed raises the required reserve ratio from 10 percent to 12 percent. What action would you need to take? How would your action and those of other banks managers end up affecting the money supply? Explain 17. Why does the Fed not have complete control over the nations money supply? Who else determines the money supplyand how? Explain 19. Explain why the Federal Reserve focuses monetary policy on the interest rate which is known as the federal funds rate. 20. The following is from a December 2008 article in the Wall Street Journal The Federal Reserve cut its interest rate Tuesday to historic lows between zero and a quarter percentage point.After two days of discussion among the Fed officials the central bank said it would use every weapon from its adrenal to lift the U.S. from recession. Another Fed lending interest rate the discount rate will go to half a percentage point a level last seen in 1940s a. What is the name of the target interest rate mentioned in the article? b. Briefly explain who borrow money and who lend money at this target interest rate c. What is the discount rate and how is it different from the target interest rate mentioned in the article? 21. In response to the financial crisis 2007-2009 the FOMC began lowering its target for the federal funds rate from5.25 percent in September 2007. Over the next year the FOMC cut its federal funds rate target in a series of steps. Writing in the New Your Times economist Steve Levitt observed: The fed is pouring more money into the banking system by cutting the federal funds rate to 0 to 0.25 percent in December of 2008. What is the relationship between the federal funds rate falling and the money supply increasing? How does lowering the target for the federal funds rate pour money into the banking system? Show less


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