Question

In: Finance

1. The Central Bank of Nowhere (a sovereign state not in the eurozone with central bank...

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!!

Solutions

Expert Solution

(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.


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