Principles Of Economics 2nd Edition Steven A. Greenlaw: University Of Mary Washington, David Shapiro: Pennsylvania State University - Solutions

Suppose Argentina gets inflation under control and the Argentine inflation rate decreases substantially. What would likely happen to the demand for Argentine pesos, the supply of Argentine pesos, and the peso/U.S. dollar exchange rate?
Suppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?
Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound.How will that affect the demand for pounds, supply of pounds, and exchange rate for pounds compared to, say, U.S.dollars?
How will a stronger euro affect the following economic agents?a. A British exporter to Germany.b. A Dutch tourist visiting Chile.c. A Greek bank investing in a Canadian government bond.d. A French exporter to Germany.
If GDP now falls back to 1,500 and the money supply falls to 350, what is velocity?
If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?
If GDP is 1,500 and the money supply is 400, what is velocity?
Suppose now that economists expect the velocity of money to increase by 50% as a result of the monetary stimulus. What will be the total increase in nominal GDP?
All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 3? (Use this information as necessary to answer the following 4 questions.)
Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank.Sketch out the balance sheet changes that will occur as Acme restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Acme Bank contains the following
Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets –
Is it preferable for central banks to primarily target inflation or unemployment? Why?
How does rule-based monetary policy differ from discretionary monetary policy (that is, monetary policy not based on a rule)? What are some of the arguments for each?
A well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective chapter) describes the short run tradeoff typically observed between inflation and unemployment. Based on the discussion of expansionary and contractionary monetary policy, explain why one of these
Explain what would happen if banks were notified they had to increase their required reserves by one percentage point from, say, 9% to10% of deposits. What would their options be to come up with the cash?
The term “moral hazard” describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations?
In what ways might monetary policy be superior to fiscal policy? In what ways might it be inferior?
Why do presidents typically reappoint Chairs of the Federal Reserve Board even when they were originally appointed by a president of a different political party?
How does a monetary policy of inflation targeting work?
What is the basic quantity equation of money?
Define the velocity of the money supply.
How might each of the following factors complicate the implementation of monetary policy: long and variable lags, excess reserves, and movements in velocity?
Which kind of monetary policy would you expect in response to recession: expansionary or contractionary? Why?
Explain how to use quantitative easing to stimulate aggregate demand.
Which kind of monetary policy would you expect in response to high inflation: expansionary or contractionary? Why?
How do expansionary, tight, contractionary, and loose monetary policy affect aggregate demand?
How do tight and loose monetary policy affect interest rates?
How do the expansionary and contractionary monetary policy affect the quantity of money?
Explain how to use the discount rate to expand the money supply.
Explain how to use the reserve requirement to expand the money supply.
Explain how to use an open market operation to expand the money supply.
Name and briefly describe the responsibilities of each of the following agencies: FDIC, NCUA, and OCC.
What is the lender of last resort?
In government programs of bank supervision, what is being supervised?
In a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?
What is a bank run?
How is bank regulation linked to the conduct of monetary policy?
List the three traditional tools that a central bank has for controlling the money supply.
How is a central bank different from a typical commercial bank?
Why might the velocity of money change unexpectedly?
Why might banks want to hold excess reserves in time of recession?
Why does expansionary monetary policy causes interest rates to drop?
Why does contractionary monetary policy cause interest rates to rise?
What would be the effect of increasing the reserve requirements of banks on the money supply?
If the central bank sells $500 in bonds to a bank that has issued $10,000 in loans and is exactly meeting the reserve requirement of 10%, what will happen to the amount of loans and to the money supply in general?
Bank runs are often described as “self-fulfilling prophecies.” Why is this phrase appropriate to bank runs?
Given the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the demands of depositors?
Why is it important for the members of the Board of Governors of the Federal Reserve to have longer terms in office than elected officials, like the President?
Humongous Bank is the only bank in the economy.The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding 100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of its
A bank has deposits of $400. It holds reserves of$50. It has purchased government bonds worth $70. It has made loans of $500. Set up a T-account balance sheet for the bank, with assets and liabilities, and calculate the bank’s net worth.
If you take $100 out of your piggy bank and deposit it in your checking account, how did M1 change? Did M2 change?
What do you think the Federal Reserve Bank did to the reserve requirement during the Great Recession of 2008–2009?
Explain what will happen to the money multiplier process if there is an increase in the reserve requirement?
Should banks have to hold 100% of their deposits?Why or why not?
Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank would characterize deposits and loans as assets and liabilities on its balance sheet.
The total amount of U.S. currency in circulation divided by the U.S. population comes out to about$3,500 per person. That is more than most of us carry.Where is all the cash?
Explain why you think the Federal Reserve Bank tracks M1 and M2.
Imagine that you are a barber in a world without money. Explain why it would be tricky to obtain groceries, clothing, and a place to live.
The Bring it Home Feature discusses the use of cowrie shells as money. Although cowrie shells are no longer used as money, do you think other forms of commodity monies are possible? What role might technology play in our definition of money?
What is the formula for the money multiplier?
How do banks create money?
What is the risk if a bank does not diversify its loans?
What is the asset-liability time mismatch that all banks face?
How can a bank end up with negative net worth?
How do you calculate the net worth of a bank?
What are the assets of a bank? What are its liabilities?
What does a balance sheet show?
Why is a bank called a financial intermediary?
What components of money are counted in M2?
What components of money are counted as part of M1?
What is the double-coincidence of wants?
How does the existence of money simplify the process of buying and selling?
What are the four functions served by money?
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans made by banks) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan if:a. The borrower has been
Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?
For the following list of items, indicate if they are in M1, M2, or neither:a. Your $5,000 line of credit on your Bank of America cardb. $50 dollars’ worth of traveler’s checks you have not used yetc. $1 in quarters in your pocketd. $1200 in your checking accounte. $2000 you have in a money
If you are out shopping for clothes and books, what is easiest and most convenient for you to spend: M1 or M2?Explain your answer.
Can you name some item that is a store of value, but does not serve the other functions of money?
In many casinos, a person buys chips to use for gambling. Within the walls of the casino, these chips can often be used to buy food and drink or even a hotel room. Do chips in a gambling casino serve all three functions of money?
Use Table 26.3 to answer the following questions.a. Sketch an aggregate supply and aggregate demand diagram.b. What is the equilibrium output and price level?c. If aggregate demand shifts right, what is equilibrium output?d. If aggregate demand shifts left, what is equilibrium output?e. In this
Is it a logical contradiction to be a neoclassical Keynesian? Explain.
The American Recovery and Reinvestment Act was criticized by economists from all theoretical persuasions. The “Stimulus Package” was arguably a Keynesian measure so why would a Keynesian economist be critical of it? Why would neoclassical economists be critical?
Explain why the neoclassical economists believe that nothing much needs to be done about unemployment. Do you agree or disagree? Explain.
If most people have rational expectations, how long will recessions last?
If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer
When the economy is experiencing a recession, why would a neoclassical economist be unlikely to argue for aggressive policy to stimulate aggregate demand and return the economy to full employment? Explain your answer.
What is the shape of the neoclassical long-run Phillips curve? What assumptions are made that lead to this shape?
If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?
Do neoclassical economists see a value in tolerating a little more inflation if it brings additional economic output? Explain your answer.
Do neoclassical economists tend to focus more on cyclical unemployment or on inflation? Explain briefly.
Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.
A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appears that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures
What is the difference between rational expectations and adaptive expectations?
What shape is the long-run aggregate supply curve?Why does it have this shape?
Does neoclassical economics view prices and wages as sticky or flexible? Why?
Does neoclassical economics focus on the long term or the short term? Explain your answer.
Summarize the Keynesian and Neoclassical models.
Would it make sense to argue that rational expectations economics is an extreme version of neoclassical economics? Explain.
Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to accomplish this goal. From a neoclassical perspective, how will this policy affect output and the price
Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future?Explain your answer.

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Principles Of Economics 2nd Edition Steven A. Greenlaw: University Of Mary Washington, David Shapiro: Pennsylvania State University - Solutions

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