Chapter 16: Q9. (page 347)
True or False: A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.
The given statement is true.
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A bank currently has \(100,000 in checkable deposits and \)15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ______ in money-creating potential. If the reserve ratio is 14 percent, the bank has _______ in money-creating potential
a. \(20,000; \)14,000
b. \(3,000; \)2,100
c. −\(5,000; \)1,000
d. \(5,000; \)1,000
What are the two parts of the Fed’s dual mandate? How does the dual mandate relate to the bullseye chart? Which quadrants of the bullseye chart give conflicting signals to the Fed, and what is the source of the confusion in each case?
Suppose a bond with no expiration date has a face value of \(10,000 and annually pays \)800 in fixed interest. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. What generalization can you draw from the completed table?
Bond Price \( 8,000 | Interest Yield, % ________ |
______ | 8.9 |
\)10,000 $11,000 _______ | ________ ________ 6.2 |
What are the components affected in a contractionary monetary policy?
The Taylor Rule puts _________ as much weight on closing the unemployment gap as it does on closing the inflation gap.
a. just
b. twice
c. half
d. ten times
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