In: Finance
1. The Central Bank of Nowhere (a sovereign state not in the eurozone with central bank laws like those of the U S.) has determined that the economy has a higher velocity than is desirable. What facts might have led the central bankers to that conclusion?. Multiple choice.
A. Declining prices
B. Rising prices
C. High unemployment
D. Low unemployment
E. Low labor market participation rate
F. High labor market participation rate
G. High default rate
H. Low default rate
2. You are an advisor to the Central Bank of Nowhere. What monetary and fiscal policies might you recommend the Bank’s Board of Governors adopt in order to lower velocity?. Multiple choice.
A.___Sell Bonds
B.___Buy Bonds
C.___Raise the Reserve Ratio
D.___Lower the Reserve Ratio
E.___Raise the budget deficit
F.___Lower the budget deficit.
G.___Lower the trade deficit
H.___Raise the trade deficit
I.___Lower the Discount Window Rate
J.___Raise the Discount Window Rate
K._ Pay interest on Bank Reserves held by Central Bank
L._Stop paying interest on reserves held.
3. All participants in the financial markets must register with the Securities and Exchange Commission (US) or Canadian Securities Administrators (Canada) and renew that registration annually.. Single choice.
True
False
Please Answer all 3!!
(1) The Central Bank of Nowhere has determined that the economy
has a higher velocity than is desirable. The facts that might have
led the central bankers to that conclusion can be
B)Rising prices
D)Low unemployment
F)High labor market participation rate
H)Low default risk
The velocity of money is known as a measurement of the rate at
which money is exchanged in an economy. Higher velocity is observed
when the economy is in explosion phase.
In expansion, the economy moves out of recession. The money soon
becomes cheap to borrow, businesses build up stock again and
consumers start spending. In this phase, the GDP rises, per capita
income grows, unemployment declines, and equity markets generally
perform well.
(2)
In order to lower the velocity the bank uses contractionary
fiscal and monetary policies.
Contractionary fiscal policy is when the government either
decreases spending or increases taxes. It reduces the amount of
money available in the market. Contractionary monetary policy is
when a central bank uses some tools to reduce inflation. It's the
method by which the bank slows economic growth.
The monetary and fiscal policies recommended to the Central Bank
Nowhere's Board of Governors to adopt in order to lower velocity
are as follows:
(A)Sell Bonds - this will reduce
the money supply in the market helping in lowering the
velocity
(C)Raise reserve
ratio - this will reduce the amount of money in the hands of banks
hence reducing its capacity to lend it's customers
(E)Raise budget
deficit- this is also a tool to contract the economy
(H)Raise trade
deficit - this will increase imports and thus decrease the money
supply
(J)Raise discount window rate - this will be helpful for
contracting the economy
(K)Pay interest on bank reserves held by Central bank - this will
lead to increase in bank reserves thus decreasing money supply
3)
The Securities and Exchange Commission (US) is an independent
agency of United States federal government. It that was created to
protect investors and the national banking system.
The Canadian Securities Administrators (Canada) is a regulatory
organisation of Canada's provincial and territorial securities
regulators. It improves and coordinates the regulation of the
Canadian capital markets. It's objective is also to harmonize the
regulation.
Since both of them are for different countries, the given statement is false.