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Consider that content with the steady pace of economic recovery, the Federal Reserve Bank decides to undertake a large-scale asset sale resulting in a decrease in money supply.
a) What would be the effect of such a policy on equilibrium interest rate in the money market? Explain why the equilibrium interest rate changes the way it does. Provide a graphical illustration using the appropriate diagram(s).
b) Discuss the effects of the policy on equilibrium output and interest rate in the economy using the ISLM-ADAS model in the short run. Explain which market (or markets) is (or are) affected and which curves shift. Illustrate your answer with the appropriate diagrams.
c) Now discuss the effects in the medium run. You do not need to draw new diagrams; but you should refer to the diagrams in part b above and state which curves shift and in which direction they shift, and what happens to output and the interest rate in the medium-run equilibrium. A branch of the economics profession has argued that money is “neutral”. Does your analysis support this claim? Explain.
Which of the following makes discretionary fiscal policy more difficult to use appropriately?
The risk-free rate on 30 year U.S. Treasury bonds is 3.25% and the expected rate of return on the overall stock market is 12%. The company has a beta of 1.6. What is the cost of equity?
Consider the following information about banking system: What is the value of excess reserves in the banking system? What is the value of deposits in the banking system? How much in government bonds should the Fed sell or buy?
Wage differences between men and women do not reflect discrimination but rather differences in job continuity and rational decisions with respect to education and on-the-job training.”
Suppose the velocity of money is constant at 10 transactions per year, the price level for this year is $4, and real GDP this year is $6,000,000. What is the money supply this year?
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If a company wants its promotion to appeal to a new group of target customers in a foreign country, how can it protect against its communications being misinterpreted?
Consider a labor market where the current equilibrium wage rate (W) is S5 and there are 50,000 individuals employed. Assume that the elasticity of demand for labor (ED) is equal to -0.2 and that the elasticity of supply (Es) is equal to 0.1. Now, if ..
A client for whom you have prepared the current tax return approaches you for advice and support for an audit covering the last five returns. You were not involved in the preparation of the previous four.
A transmission line project involving 51 towers has been approved. The number of engineering hours needed to accomplish the first detailed tower design is 124. Assuming a 93% learning curve, what is your estimate of the number of engineering hours ne..
Explain why their contrasting views on the shape of the aggregate supply curve lead some economists to argue much more strongly for stabilization policies to fight unemployment and other economists to argue much more strongly for stabilization polici..
Determine the quantity demanded, the quantity supplied, and the magnitude
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