Macroeconomics Hw Assignment 4 On Unit 7 And 8

1 ) What kinds of Monetary policy (easy or tight ) should be exercised under the recessionary gap ? Give examples of policy tools in terms of RRR (Required Reserve Ratio , DR (Discount rate ) and OMP (open market place policyDuring a recessionary gap , the federal official Reserve must evoke scotch growth . To stimulate economic growth , the national Reserve must buy bonds through the open market policy , decrease the required reserve ratio to summation the loanable funds , and /or decrease the discount rate . buying bonds increases the available coin grant . Also , by the ever-changing the proportion of central back , the Federal Reserve scum bag control the amount of loanable funds . If there are much funds for loan , then this increases the silver supply . The Federal Reserve burn down also control the discount pass judgment which is essentially the gratifys rate that banks and other depository institutions are supercharged to borrow from the Federal Reserve HYPERLINK http /www .investopedia .com / touching .aspx ?Recipient rheakal Domain hotma il .com Subject Investopedia 20Contact 20Form Url /articles /04 /050504 .asp Heakal , 2004 . and then increasing the discount rate would lessen the bank s acceptance of money from the Federal Reserve and therefore decrease the money supply . All of these monetary policies mentioned increase the money supply which in turn decreases evoke rates . Lower interest rate induces much spending among the people . The increase in investment spending would taut an increase in the economic growth . An increase in economic growth would mean a decline in the recessionary gap2 ) Explain the` property MULTIPLIER` of money creation including the motleyula and the processThe money multiplier factor factor basically defines the maximum amount of new demand-deposit money that can be created by a single initial one dollar bill of excess reserves (McConnell , 2005 .

So that when a bank has a certain reserve ratio , it is able to loan to other bank what ever money that was deposited to this bank . This creates some form of multiplier in the money supply . Basically the money multiplier m is the inverse of reserve requirement R (m 1 /R . So that if the reserve requirement practice by the Federal Reserve is 25 , then the multiplier m is equal to 1 /0 .25 or 4 Money multiplier shows that when required reserve ratio R is lower , the money multiplier increases . The higher the money multiplier means the higher the money supply 3 ) `Pre exam` . Describe Question 4 and its correct answer with a brief explanationAs the opportunity cost of holding money increases , the measuring rod demanded of money Top of FormBottom of Form aincreases bincreases , then decreases cdecreases ddecreases , then increases eremains unaltered When the opportunity cost of holding money increases , the tendency for mankind is to demand less money . Opportunity cost increases as a result of higher interest rate . When the interest rate is high , public tend to gain more when money is in the form of other assets . So in simpler terms opportunity cost of holding money...If you want to stick out a full essay, order it on our website: Orderessay

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