University:
Central Michigan University
Course:
ECO 306 | Money and Banking
Academic year:

2022
Views:

270

Pages:

3
Author:

Monique Dickson

Name: Team: Unit 4: Money and Monetary Policy Money Market Draw S&D of Moncy and Equilibrium Interest Rate Three Functions of Money 1-Mediumot Exchang 2. Unit of Account 3 Store of Value DM Types of Money 1. Commodity Money Seme thry thut pertoins function of money. 2. Fiat Money Something that serves as money bulino other important us. Sm Quantity Shifters of Money Demand YM Shifters of Money Supply (The FED) 1. Price Level 2 Changes in Income 3. Change in taxation that affects inurstimmt 1. Reserve Requirement 2. Discount Bate 3. Open Market Operations Moncy Multiplier Practice 1. Assume the reserve requirement is.10. If the Fed buys $10 billion worth of bonds the money supply will increase by $100 billion. 2. Assume the reserve requirement is 20. If the Fed sells $10 billion worth of honds the money supply will decieuse by 50 billion. 3. Assume the reserve requirement is.10. If the Fed buys $5 billion worth of bonds the money supply will Mireas by $50 billion. 4. Assume the reserve requirement is .50. If the Fed sells $5 billion worth of bonds the money supply will decseuse by 410 billion. 4. Assume the reserve requirement is .25. If the Fed sells $2 billion worth of bonds the money supply will decrease by $48 billion. Shifter Practice 1. If the FED increases the reserve requirement the money supply will and interest rates个 2. If the FED sells bonds the money supply will interest rates, and investment 3. If the FED decreases the reserve requirement the money supply will and interest rates V 4. If the FED decreases the discount rate, the money supply will and interest rates 5. If the FED buys bonds the money supply will interest rates and investment Federal Funds Rate Federal Funds Rate Ryk which barks toudy. REAL INTEREST RATE REAL INTEREST RATE OR D D D QQ QUANTITY OF FUNDS QUANTITY OF FUNDS (a) 2 points: One point is eamed for indicating that the demand-for-funds curve shifts to the right of that the supply-of-funds curve shifus to the left. One point is earned for concluding that the real interest rate will increase. (b) 1 point: One point is esined for indicating that the investment in plant and equipment will decrease because of the higher real interest rate. (c) 2 points. One point is earned tos suating that the decrease in investment in plant and equipment will decrease the growth of the capital stock for reduce capital stock). One point in enned for concluding that long-term economic growth will decrease 6 pointa (2+1+2+1) MS NOMINAL INTEREST RATE MD MD M (a) 2 point: QUANTITY OF MONEY One point in esoned for a corectly labeled graph of the money market One point in earned for showing a downward shift of the money demand curve and slowing a decrease in the nominaliaceret rate using ancws, lubele or dotted lines. (b) 1 point One point is earned for stating that bond press will rise in the shon rus (c)2 point One point is sarned for stating that the price level will One point is earned for the explanation that the price level increases because eggregate deittard incrnance, and aggregme demand increase because iconmat-sensitive spending investment, consumption or net exporus) incre (d) 1 potas One point is earned for stating that the Fad could sell hande to decrease the money apply and raise the interest sabe back to the original krvel

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