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der two assumptions: (1) The government keeps interest rates constant through an accommodating
monetary policy. (2) The money stock remains unchanged. Explain the difference in results
we thought best characterized the economy, would we lean toward the use of fiscal policy or
monetary policy? (You may assume your goal is to affect output.)
are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold
no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no
coins. (5 marks each)
a) What is the economy's monetary base?
b) What is the quantity of money in the economy?
c) Calculate the money multiplier.
d) Suppose the Central Bank of Brightland undertakes an open market purchase of securities of
so that the monetary base increases by $5 billion. By how much will the quantity of money change?
Consider two alternative programs for contraction. One is the removal of an investment subsidy; the other is a rise on income tax rates. Use the IS-LM model and the investment schedule, as shown in figure 12-9, to discuss the impact of these alternative policies on income, interest rates, and investment.
In figure 12-10 the economy can move to full employment by an expansion in either money or the full-employment deficit. Which policy leads to E1 and which to E2? How would you expect the choice to be made? Who would most strongly favor moving to E1 versus E2? What policy would correspond to “balanced growth”?
In the text we describe the effect of an open market purchase by the fed.
a. Define an open market scale by the fed
b. Show the impact of an open market sale on the interest rate and output. Show both the immediate and the long-term impacts.
Does Japan have an inflationary gap or a recessionary gap and what is its magnitude?
Mention two demand side approaches which are used by the rsa government government to promote economic growth and development
