Marrissa Bradley
Assignment 5: Money and Banking
Chapter 19
17. a. Ten-year Treasury Bond- intermediate target; not directly affected by the tools of the Fed
b. Monetary Base- policy instrument; directly affected by the tools of the Fed
c. M1- intermediate target; not directly affected by the tools of the Fed
d. Fed Funds Rate- policy instrument; directly affected by tools of the Fed
21. Disagree. While the nominal interest rate is easily observable, the real interest rate depends on inflation and therefore can be more difficult to measure, making reserve requirements more measurable and the preferred policy instrument.
22. Bank behavior can cause money growth to be procyclical because when interest rates rise, they decrease reserves and increase borrowing from the Fed. Both of these behaviors lead to a higher money supply. Fed behavior can cause money growth to be procyclical an interest rate target can lead to a slower rate of growth of the money supply during recessions and a more rapid rate of growth during booms.
24. An increase in the demand for reserves will lead to a rise in the money supply if the Fed has an interest-rate target because the increase in demand for reserves raises the federal funds rate. The Fed will buy bonds to maintain the interest rate target. The open market purchase will then cause a rise in the money supply.
Chapter 20
4. The theory of purchasing power parity predicts that the Japanese price level rising by 5% relative to the price level in the US will cause the Japanese yen to fall 5% in terms of dollars.
9. The dollar will appreciate.
11. The Indian rupee will appreciate.
12. The dollar will depreciate.
15. The dollar should appreciate.
23. The dollar will