ECN 506 Chapter Notes - Chapter 11: Money Multiplier, Open Market Operation, Real Interest Rate

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whitehornet723

18 Nov 2016

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Chapter 11: the money supply and interest rates. Money supply= currency in circulation + checking deposit (bank+ customer) Monetary base (fed)= currency in circulation (people outside the bank)+ bank reserves(public decision of change in currency and bank reserves) total liability of fed to private sector. Open- market operations: purchases/ sales of bonds by central bank. Crisis, purchase prime mortgage- backed securities issued by gses. Expansionary open-market operation: purchase of bonds raises the monetary base. Fed purchases bond: pay cash increase c by , deposit in dealer"s bank increase r by . Contractionary open-market operation: sale of bonds reduce the monetary base. Sell bond to dealer for : receive in currency or cheque, reduce bank deposit b decrease . Discount loan: fed bank @ bank"s request @discount rate: fed bank b increase , repayment reduce bank reserves and monetary base b decrease . Change in r ( no change in b no change in bs.

Related Questions

1. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply(decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4. If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much?

cyanworm559

1. (0.2 pt) In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. (0.2 pt) If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. (0.2 pt) Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply (decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4.(0.2 pt) If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much? (Make sure to show all your work.)

chocolateswan996

Assume that China maintains a currency peg to the U.S. dollar. If the peg was abandoned and the yuan - dollar exchange became a floating exchange rate, we can expect:

A	An increase in the rate of domestic economic growth in China.
B	An increase in U.S. interest rates as China reduces purchases of U.S. Treasury debt.
C	Europe would also abandon the peg of the euro to the dollar.
D	An appreciation of the dollar in relation to the yuan.

When the Federal Reserve uses open market operations (OMO) in an expansionary monetary policy:

A	The Fed will purchase stocks from banks, increasing the monetary base.
B	The Fed will decrease the discount rate, decreasing the monetary base.
C	The Fed will buy bonds from banks, increasing bank reserves and increasing the monetary base.
D	The Fed will lower taxes and increase government spending.

ECN 506 Chapter Notes - Chapter 11: Money Multiplier, Open Market Operation, Real Interest Rate

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