/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q.16 Suppose that to finance its cred... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 16: Q.16 (page 369)

Suppose that to finance its credit policy, the Fed pays an annual interest rate of 0.50 per cent on bank reserves. During the course of the current year, banks hold $1 trillion in reserves. What is the total amount of interest the Fed pays banks during the year?

Short Answer

Expert verified

the total amount of interest the Fed pays banks during the year $5billion.

Step by step solution

01

Introduction

Money velocity is the recurrence at which the typical same unit of cash is utilized to buy recently locally created labour and products in a given time span.

02

Explanation

Given,

Annual interest rate = 0.5%

Applying the formula,

MV = PY

鈬�0.5100脳1=0.005

Or$5billion

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Consider figure 16-7. Discuss a specific monetary policy action that Fed's Trading Desk could implement in order to induce the effects traced out by this figure.

Suppose that, initially, the U.S. economy was in an aggregate demand-aggregate supply equilibrium at point A along with the aggregate demand curve AD in the diagram below. Now, however, the value of the U.S. dollar suddenly appreciates relative to foreign currencies. This appreciation happens to have no measurable effects on either the short-run or the long-run aggregate supply curve in the United States. It does, however, influence U.S. aggregate demand.

a. Explain in your own words how the dollar appreciation will affect net export expenditures in the United States.

b. Of the alternative aggregate demand curves depicted in the figure- AD1versus AD2which could represent the aggregate demand effect of the U.S. dollar's appreciation? What effects does the appreciation have on real GDP and the price level?

c. What policy action might the Federal Reserve take to prevent the dollar's appreciation from affecting equilibrium real GDP in the short run?

Suppose that the economy currently is in long-run equilibrium. Explain the short- and long-run adjustments that will take place in an aggregate demand-aggregate supply diagram if the Fed expands the quantity of money in circulation.

What do you suppose might be gained-and by whom-if the Fed were to follow an easily understood rule as a guide for conducting monetary policy? Explain.

Suppose that each 0.1percentage point decrease in the equilibrium interest rate induces a \(10billion increase in real planned investment spending by businesses. In addition, the investment multiplier is equal to 5, and the money multiplier is equal to 4. Furthermore, every \)20billion increase in money supply brings about 0.1percentage point reduction in the equilibrium interest rate. Use this information to answer the following questions under the assumption that all other things are equal.

a. How much must real planned investment increase if the Federal Reserve desires to bring about a $100billion increase in equilibrium real GDP ?

b. How much must he money supply change for the Fed to induce the change in real planned investment calculated in part (a) ?

c. What dollar amount of open market operations must the Fed undertake to bring about the money supply change calculated in part (b) ?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.