If the Fed wants to increase aggregate demand, it can increase the money supply. If it...

If the Fed wants to increase aggregate demand, it can increase the money supply. If it does this, what happens to the interest rate and rate of inflation? Why might the Fed choose not to respond in this way?

Should monetary policy be made by rule rather than by discretion? Why?

The only thing backing up a nation’s currency (fiat money) in the modern world is faith in the government issuing it. If this is so, what should governments do to maintain a stable currency? How can the Central Bank (the Federal Reserve) build trust in the U.S. currency? What actions would undermine a currency?

Expert Solution

1.

An increase in money supply shifts the money supply curve to the right, leading to a fall in interest rate.

Inflation rises in the economy since money supply rises, leading to an increase in price level in the economy.

Fed might chose not to respond in this way if it fears the economy is already fighting with inflation and further increasing money supply would only make things worse

No, monetary policy should be made by discretion as the application of the policy varies from situation to situation. By making it a rule, things can get worse as it would become less monitored and would have to be applied even in cases where it could be avoided.

Government should keep the value of currency stable in the forex markets and work to make sure it stays strong and competitive with respect to rest of the countries.

The Central bank can build trust in the US currency by keeping the currency strong and the economy competitive. Also, huge reserves of the currency as well as foreign currency should be kept to alter supply or demand for either currency to keep oneself strong.

A weak monetary policy or low level of reserves would undermine a currency and make people lose trust in it.

Rahul Sunny answered 1 week ago

The Fed wants to increase the money supply (which is currently $7,000) by $250. The money...

The Fed wants to increase the money supply (which is currently $7,000) by $250. The money multiplier is 3, and people hold no cash. For each 1 percentage point the discount rate falls, banks borrow an additional $10. Explain how the Fed can achieve its goals using the following tools: a. Change the reserve requirement. Instructions: Enter your response rounded to the nearest whole number. The Fed should (lower or raise) the reserve requirement to ______ percent. b. Change the...

If the Fed wants to increase the money supply, it will _____ Treasury securities. Question 17...

If the Fed wants to increase the money supply, it will _____ Treasury securities. Question 17 options: a) issue b) buy c) sell d) hold When the Fed wants to change the money supply, it usually buys or sells money market mutual funds. Question 18 options: a) True b) False The Federal Reserve is the: Question 19 options: a) federal government's bank, central bank, and banker's bank in the United States. b) federal government's bank. c) U.S. central bank. d)...

1. Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply...

1. Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain 2. Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve 3. In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Which of the following policies can the Fed follow to increase the money supply?

Which of the following policies can the Fed follow to increase the money supply? Reduce the interest rate on reserves Increase reserve requirements for banks Reduce the quantity of funds available through the Term Auction Facility Sell government bonds

What tools can the FED use to increase or decrease the money supply. Describe it full....

What tools can the FED use to increase or decrease the money supply. Describe it full. What effect does each tool have on GDP inflation and employment. For example if the Fed increases interest rates what might be the impact of that action on GDP, Inflation and Employment?

Explain using a series of balance sheets how the Fed can increase the money supply in...

Explain using a series of balance sheets how the Fed can increase the money supply in the economy.

In the dynamic aggregate demand and aggregate supply model, the rate of inflation will increase if:...

In the dynamic aggregate demand and aggregate supply model, the rate of inflation will increase if: Select one: A. AD shifts to the right by more than the LRAS curve. B. If total production increases faster than total spending. C. SRAS and LRAS curves shifts to the right by the same magnitude. D. AD shifts to the right by less than the LRAS curve.

Analyze the effects of an increase in the money supply , inflation and how the FED...

Analyze the effects of an increase in the money supply , inflation and how the FED selects the target federal funds rate and the important job or the trading desk. Describe direct and indirect effects and give examples for each

1) Suppose that the Fed decides to increase the growth rate of the money supply in...

1) Suppose that the Fed decides to increase the growth rate of the money supply in the United States. What is most likely to happen to the U.S. trade deficit and to GDP? Answer. The trade deficit will fall; GDP will rise Please explain why? 2) Explain three factors that would cause the dollar to appreciate?

Changes to both the money supply and the velocity of money include changes in aggregate demand....

Changes to both the money supply and the velocity of money include changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different?

Question