HELP I AM CONFUSED :( PLEASE 1. Beginning in the fall of 2008, amid the financia
ID: 1222858 • Letter: H
Question
HELP I AM CONFUSED :( PLEASE
1. Beginning in the fall of 2008, amid the financial markets' turmoil, the Fed and many other central banks around the world began engaging in a new type of monetary policy referred to as quantitative easing. This type of policy involves:
injecting reserves into the financial system by purchasing an array of assets (including long-term government securities, and asset-backed securities) directly from the private sector.
lowering the discount rate of interest to zero.
lowering the fed funds rate of interest to zero.
selling large amounts of government debt to the financial market.
2.If business expectations suddenly worsen, the investment schedule would (according to Keynes) shift to the ________ and aggregate demand would shift to the _________, ceteris paribus.
left, right
left, left
right, right
right, left
3.If you buy a bond (with a face value of $1000) for $900, and it pays interest of $80/year, its current yield is approximately equal to:
8.9% or $80/$900
8% or $80/$1000
7.2%
80%
4. The “liquidity trap” that Keynes described is important because:
it implies the government’s use of fiscal policy will fan inflation.
it implies the government’s attempt to stimulate the economy will only crowd out private investment.
it implies that expansionary monetary policy will have no influence on short-term interest rates and will therefore fail to stimulate the economy.
it implies that expansionary monetary policy may be too powerful and will over-stimulate the economy.
5.Crowding out refers to:
an increase in private-sector spending caused by an increase in government borrowing.
an increase in net exports caused by an increase in government borrowing.
a decrease in private-sector spending (C and I) caused by an increase in government borrowing.
an increase in consumption expenditures caused by an increase in government borrowing.
6.In the context of monetary policy, “discounting” refers to:
private banks reducing interest rates for their best corporate borrowers.
the Fed lending reserves directly to private banks.
the U.S. Treasury lending bonds to the Fed.
producers reducing prices on unsold inventory.
7.The two primary functions banks perform in the macro economy are:
set interest rates and determine fiscal policy.
determine monetary policy and set taxes.
transfer savings from savers to investors and create money via their lending activities.
set the discount rate of interest and create money via their lending activities.
8.Assume that we have an inflation problem in the economy, i.e., an inflation gap has emerged. Given this situation, it's likely that the Federal Reserve (the Fed) will engage in contractionary monetary policy. This policy might include:
lowering the discount rate of interest and open-market purchases of U.S. government securities.
lowering the reserve requirement (r) and lowering the discount rate of interest.
open-market sales of U.S. government securities (which would put downward pressure on the fed funds rate of interest and other market rates of interest).
open-market sales of U.S. government securities (which would put upward pressure on the fed funds rate of interest and other market rates of interest).
a.injecting reserves into the financial system by purchasing an array of assets (including long-term government securities, and asset-backed securities) directly from the private sector.
b.lowering the discount rate of interest to zero.
c.lowering the fed funds rate of interest to zero.
d.selling large amounts of government debt to the financial market.
Explanation / Answer
1. A is Correct, Injecting Reservesinto the system by purchasing an array of assets in order to bring down rising intrest cost.
2. Both Will shift left as High Interest Rates will postpone Investment Decisions and as well as decrease the aggregate demand.
3. A is Correct, Current Yield is Bond Coupon Payment Divided By Currecnt Price Not par Value.
4. C is Correct, Where injecting Money into the system fails to reduce the interest rate
5.C is Correct, Reduction in Personal Consumption of goods and services and investments by business due to increase in government spending causing a deficit which is financed through borrowing will increase the interest Rates.
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