04 Jun Question Chapter 16, problems 16-8, 16-12, and 16-14
Question
Chapter 16, problems 16-8, 16-12, and 16-14
Chapter 15, problems 15-4, 15-14, and 15-16
16-8. Suppose that the quantity of money in circulation
is fixed but the income velocity of money doubles.
If real GDP remains at its long-run potential
level, what happens to the equilibrium price
level? (See page 354.)
16-12. Assuming that the Fed judges inflation to be the
most significant problem in the economy and that
it wishes to employ all of its policy instruments
except interest on reserves, what should the Fed
do with its three policy tools? (See page 357.)
16-14. Imagine working at the Trading Desk at the New
York Fed. Explain whether you would conduct
open market purchases or sales in response to
each of the following events. Justify your recommendation.
(See page 353.)
a. The latest FOMC Directive calls for an increase
in the target value of the federal funds rate.
b. For a reason unrelated to monetary policy, the
Fed’s Board of Governors has decided to raise
the differential between the discount rate and
the federal funds rate. Nevertheless, the FOMC
Directive calls for maintaining the present federal
funds rate target.
15-4. Considering the following data (expressed in
billions of U.S. dollars), calculate M1 and M2.
(See pages 323–324.)
Currency 1,050
Savings deposits 5,500
Small-denomination time deposits 1,000
Traveler’s checks outside banks and thrifts 10
Total money market mutual funds 800
Institution-only money market mutual funds 1,800
Transactions deposits 1,140
15-14. Draw an empty bank balance sheet, with the
heading “Assets” on the left and the heading
“Liabilities” on the right. Then place the following
items on the proper side of the balance sheet.
(see page 332.)
a. Borrowings from another bank in the interbank
loans market
b. Deposits this bank holds in an account with
another private bank
c. U.S. Treasury bonds
d. Small-denomination time deposits
e. Mortgage loans to household customers
f. Money market deposit accounts
15-16. The Federal Reserve purchases $1 million in U.S.
Treasury bonds from a bond dealer, and the
dealer’s bank credits the dealer’s account. The
reserve ratio is 15 percent. Assuming that no currency
leakage occurs, how much will the bank
lend to its customers following the Fed’s purchase?
(See pages 333–334.)
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