Question

6-As a result of contractionary monetary​ policy,

A.interest rates​ fall, the dollar​ depreciates, and domestic goods become​ cheaper, thereby reducing net exports.

B.interest rates​ rise, the dollar​ appreciates, and domestic goods become​ cheaper, thereby increasing net exports.

C.interest rates​ rise, the dollar​ appreciates, and domestic goods become more​ expensive, thereby reducing net exports.

D.interest rates​ rise, the dollar​ appreciates, and domestic goods become​ cheaper, thereby reducing net exports.

15-As a result of an increase in the money​ supply, some banks may end up with excess reserves.

What is the likely​ result?

A.Banks will make more​ loans, thereby contributing to a decrease in aggregate demand.

B.Banks will raise interest rates.

C.Banks will make more​ loans, thereby contributing to an increase in aggregate demand.

D.Banks will spend the excess reserves by paying their employees more.

18-In an​ economy, the growth rate of GDP is known to be 5​%, the growth rate of the money supply is 10​%, and the velocity of money is constant.

According to the quantity theory of money and​ prices, in this​ economy, the inflation rate must be ?? how many percent%.

19-Suppose that each​ 0.1-percentage-point increase in the equilibrium interest rate induces a ​$4 billion decrease in real planned investment spending by businesses. In​addition, the investment multiplier is equal to 3​, and the money multiplier is equal to 5. ​Furthermore, every ​$9 billion decrease in the money supply brings about a​0.1-percentage-point increase in the equilibrium interest rate. Use this information to answer the following questions under the assumption that all other things are equal.

1- Calculate by how much the real planned investment must decrease if the Federal Reserve desires to bring about an ​$80 billion decrease in equilibrium real GDP.

​$?? billion.

​(Enter your response rounded to one decimal​ place.)

2-Calculate by how much must the money supply decrease for the Fed to induce the change in real planned investment to bring about an ​$80 billion decrease in equilibrium real GDP.

​$$$?? billion.

​(Enter your response rounded to one decimal​ place.)

3-Calculate the dollar amount of open market operations that the Fed must undertake to bring about the money supply decrease required for an ​$80 billion decrease in equilibrium real GDP.

​$??billion.

​(Enter your response rounded to one decimal​ place.)

Answer 1

6) Contractionary monetary policy causes a fall in bond prices and as a result rate of interest will rise. Higher rate of interest makes domestic bonds more attractive and demand for foreign bonds will fall. This will result in an increased demand for domestic currency and the domestic currency appreciate in the foreign exchange market. With the appreciation of domestic currency domestic goods becomes more expensive in the international market, as a result exports will reduce and imports will increase resulting in a fall in net exports. Therefore the correct answer is option (c).

15) As a result of increase in money supply banks may end up with excess reserves. Banks will utilise the excess reserves to make more loans by lowering rate of interest. This decrease in rate of interest will promote investment in the economy and as a result aggregate demand will increase in the economy. Therefore the correct answer is option (c).