Question

In: Economics

Suppose the government decides to transfer money to households in their bank account. What will happen...

Suppose the government decides to transfer money to households in their bank account. What will happen to overall money supply in the economy? Use money multiplier model and explain your answer. What will determine the magnitude of change in money supply?

Solutions

Expert Solution


Related Solutions

Suppose, in a country, the government decides to start redistributing income from rich households to poor...
Suppose, in a country, the government decides to start redistributing income from rich households to poor households. The government considers two policy options: Incentivize rich households to donate to the charity of their choosing — for example, the government could match each dollar the household donates to their charity. Enact an income tax on high income households and directly redistribute the tax revenue to poor households. Considering both efficiency and equity, provide a reason that (a) would be preferable to...
1. Suppose the Fed decides to increase the money supply. It purchases a government bond worth...
1. Suppose the Fed decides to increase the money supply. It purchases a government bond worth $2,000 from Antonia, a private citizen. Antonia deposits the check in her account at First National Bank. Supposed the required reserve ratio is 0.2 (20%). (a) Trace the effect of this change through three banks- First National, Second Federal, and Third State. (b) How much money will be generated in this banking system?
1. Suppose the Fed decides to increase the money supply. It purchases a government bond worth...
1. Suppose the Fed decides to increase the money supply. It purchases a government bond worth $2,000 from Antonia, a private citizen. Antonia deposits the check in her account at First National Bank. Supposed the required reserve ratio is 0.2 (20%). (a) Trace the effect of this change through three banks- First National, Second Federal, and Third State. (b) How much money will be generated in this banking system?
The Federal Reserve decides to sell $100 million in government debt to households paying with checkable...
The Federal Reserve decides to sell $100 million in government debt to households paying with checkable deposits. The current reserve requirement is 20%. Instructions: Enter your answer as a whole number. a. The Fed's decision will lead to   (Click to select)   more   fewer   the same  reserves in the banking system and   (Click to select)   the same   fewer   more  checkable deposits. b. The money supply will   (Click to select)   decrease   increase   remain the same  by a maximum of $   million.
Suppose Juanita comes into a large sum of money and decides to lend the money to...
Suppose Juanita comes into a large sum of money and decides to lend the money to earn interest. She realizes that she does not have the expertise to evaluate the credit risks of potential borrowers. As she struggles to evaluate these risks, Juanita ultimately decides that her local bank has experience and knowledge about potential borrowers and their probability of repayment, and she decides to lend through the local bank, a financial intermediary. This is an example of how financial...
Suppose Eileen comes into a large sum of money and decides to lend the money to...
Suppose Eileen comes into a large sum of money and decides to lend the money to earn interest. She realizes that even if she were able to evaluate whether the borrower is creditworthy before making the loan, she cannot ensure that her borrower uses the money as promised once she lends the money. Therefore, because a financial intermediary has the ability to track customers' uses of money more easily and the ability to take action quickly If needed, she decides...
If the central bank increases money supply, what will happen to product/service price in general and...
If the central bank increases money supply, what will happen to product/service price in general and interests in general? The mechanism of how the change in money supply influences prices and interest rates should be clearly explained.
Suppose you need to deposit money in a savings account. Bank X offers a rate of...
Suppose you need to deposit money in a savings account. Bank X offers a rate of 10.200% compounded monthly; Bank Y offers a rate of 10.150% compounded quarterly; Bank Z offers a rate of 10.400% compounded annually. Which bank is best for you? Group of answer choices Bank X Bank Y Not enough information to answer Bank Z
Suppose the Central Bank sells government bonds. (i) Use a graph of the money market to...
Suppose the Central Bank sells government bonds. (i) Use a graph of the money market to show the effect of the Central Bank’s action. (ii) Explain the graph that you drew in (i) and how it affects the value of money. (b) Country A is experiencing severe inflation due to an increase in aggregate demand. (i) Suggest an appropriate monetary policy that may help to solve the inflation problem in country A. (1 mark) (ii) Explain how two (2) of...
Suppose that in the market for coffee, the government decides to impose a tax on the...
Suppose that in the market for coffee, the government decides to impose a tax on the consumption of coffee. Illustrate the equilibrium market for coffee reflecting the new tax. On your graph, label the new price that consumers pay as Pc On your graph, label the new price that sellers receive as Ps On your graph, shade in the area representing the tax revenue received by the government and label it (TR). On your graph, shade in the area of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT