v) If a central bank wants to increase the market interest rates, they should buy or...

v) If a central bank wants to increase the market interest rates, they should buy or sell public debt? vi) If an economy faces high unemployment, the centra bank should buy or sell public debt? vii) How can Central Banks target a specific level of interest rate?

Expert Solution

(v) If the central banks want to increase interest rates, they should sell public debt as this will reduce the amount of money in the economy and the money supply curve shifts to the left, thus, increasing the equilibrium rate of interest.

(vi) If the central bank faces high unemployment, they need to reduce interest rates and expand the economy. This happens by buying public debt as this will increase the amount of money in the economy and the money supply curve shifts to the right, thus decreasing the equilibrium rate of interest.

(vii) the central banks can target a specific level of interest rate by engaging in open market operations. They can sell public debt to increase the rates and purchase public debt to reduc ethe rates.

Rahul Sunny answered 2 years ago

The Bank of Canada may use ____ when it wants to increase interest rates in the...

The Bank of Canada may use ____ when it wants to increase interest rates in the overnight funds market. Redeposits Drawdowns T-bill purchases Purchase and resell agreements

“Request the central bank to raise interest rates. We acknowledge monetary policy considerations by the Central...

“Request the central bank to raise interest rates. We acknowledge monetary policy considerations by the Central Bank are always finely balanced amongst lowering inflation, safeguarding the balance of payments and supporting economic growth. The Ministry of Finance will request the Central Bank to have monetary policy cooperate with fiscal policy as far as possible by raising the repo rate. This will send a signal for the transmission of higher and rising interest rates throughout the financial system including an increase...

It is March and Bank A is concerned about what an increase in interest rates will...

It is March and Bank A is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $101.1 million and Bank A management intends to liquidate $1.1 million in bonds in June to fund additional corporate loans. If interest rates rise to 6% the bond will sell for $1 million with a loss of $100000.Bank A's management sells 10 June Treasury bond contracts at 109-050...

Explain how the Central Bank can increase the interest rate in the economy.

If the Central Bank changes the quantity of money, how do the interest rates change in...

If the Central Bank changes the quantity of money, how do the interest rates change in the short-run and long-run ?

If the Fed wants to lower interest rates it will: A) Buy bonds B) Sell bonds...

If the Fed wants to lower interest rates it will: A) Buy bonds B) Sell bonds C) Contract the money supply D) Lower unemployment 2) The Fed may lower interest rates for all of the following reasons, except: A) Because they are contracting the money supply. B) Because they are practicing expansionary policy. C) Because the economy has entered a recession. D) To encourage growth in private-sector investment. 3) The unemployment rate and GDP growth rate tend to be inversely...

2. If the government wants to increase interest rates in the economy, what kind of open...

2. If the government wants to increase interest rates in the economy, what kind of open market operations should it follow? Describe the full process, along with the impacts on GDP (include graphs)

A) Judy runs a bank and believes interest rates will increase in the future. Explain what...

A) Judy runs a bank and believes interest rates will increase in the future. Explain what size interest rate gap the bank should have and why. B) Explain how the Volcker Rule was designated to limit market risk banks face.

Suppose a central bank decides it is appropriate to increase its policy interest rate in order...

Suppose a central bank decides it is appropriate to increase its policy interest rate in order to increase rates more generally throughout the economy. In the contex of the money market , if the money demand function is stable ,explain how the change in policy would be reflected in the money supply. Suppose the economy is a closed one. What effect will there be on investment, on aggregate expenditure? Include diagrams in your answer. What additional effect will there be...

An increase in the market interest rates will generally cause the price a corporate bond with...

An increase in the market interest rates will generally cause the price a corporate bond with a fixed coupon rate to: a) become worthless b) decrease in value c) remain unchanged d) increase in value

Question