Paragraph Font CRIPTION To create or edit files, you'll need to renew your subscription Renew Assignment 6: Macroeconomics 161 Class, below you will see a total of ten questions. Using the highlighter function in Microsoft Word highlight the correct answer or delete the wrong answer (underlined) Areas which require a response via checking a box, simply click on your answer choice Some areas may require you to type in your answer. For the graph area, describe the shift by typing the answer for example - demand shifts right or supply curve shifts left or no change. If you prefer to write your answers on a separate document this is also acceptable. 1. The roles of money Sam has saved $30 per week to buy a preowned gaming console. He compares two different models: a Sintendo that is priced at $130 and a Nony system that is priced at $140. Sam decides to purchase the used Nony system for $140. Identify what role money plays in each of the following parts of the story. Hint: Select each role only once. Medium of Unit of Store of Role of Money Exchange Account Value Sam can easily determine that the Sintendo system has a lower price than C the Nony system Sam saved $30 per week. C C Sam pays $140 for the gaming console. C C 2. Liquidity Consider the relative liquidity of the following assets: Assets 1. The funds in a savings account 2. A share in a publicly traded company words x Text Predictions: On Xx Accessibility: Investigate e here to search Ei a WBb AaBbCCD Ad D AaBbCCE AQBbGOD. AaBbCcD: AaBbCCD( AaBbCcDC AgBbCCD ding 2 Heading 3 Title Subtitle Subtle Em... Emphasis Intense E.. Strong Quote tense Q., Sul Styles 3. A $10 bill 4. Your truck Select the assets in order of their liquidity, from most liquid to least liquid. TYPE IN TH NUMBER CORRESPONDING TO THE SELECTION ABOVE. Asset Most Liquid Second-Most Liquid Third-Most Liquid Least Liquid A 3. The kinds of money Despite the fact that personal possession of currency is not allowed by U.S. prisons, in reality, incarcerated people still exchange goods and services. U.S. prisoners used cigarettes as a medium of exchange until smoking was banned in U.S. prisons in 2003 After 2003, prisoners looked to other items on the commissary menu to facilitate exchange. In 2008, the Wall Street Journal reported that energy bars had caught on as money in some U.S. prisons. A main difference between using energy bars and using dollars as money is that U.S. DOLLARS OR ENERGY BARS have intrinsic value. U.S. dollars are an example of FIAT OR COMMODITY money. 4. Money aggregates Identify whether each of the following examples belongs in M1 or M2. If an example belongs in both, be sure to check both boxes. Example M1 M2 Focus 42.F Mostly cloudyCcD Aab AaBbCCC AaBbCCD( AaBbCCD( AoBbCCD( AaBbCCD(|AQBbCCD ng 3 Title Subtitle Subtle Em... Emphasis Intense E... Strong Quote Styles 3. The kinds of money Despite the fact that personal possession of currency is not allowed by U.S. prisons, in reality, incarcerated people still exchange goods and services. U.S. prisoners used cigarettes as a medium of exchange until smoking was banned in U.S. prisons in 2003. After 2003, prisoners looked to other items on the commissary menu to facilitate exchange. In 2008, the Wall Street Journal reported that energy bars had caught on as money in some U.S. prisons. A main difference between using energy bars and using dollars as money is that U.S. DOLLARS OR ENERGY BARS have intrinsic value. U.S. dollars are an example of FIAT OR COMMODITY money 4. Money aggregates Identify whether each of the following examples belongs in M1 or M2. If an example belongs in both, be sure to check both boxes. Example M1 M2 Sam has $25,000 in a money market account. Lorenzo has a roll of quarters that he just withdrew from the bank to do laundry. Teresa has $8,000 in a two-year certificate of deposit (CD). 5. The Federal Reserve's organization There are 5 OR 7 OR 12 Federal Reserve regional banks. FocusBI U x X X A Font Paragraph RIPTION To create or edit files, you'll need to renew your subscription Renew The Federal Reserve's role as a lender of last resort involves lending to which of the following financially troubled institutions? U.S. state governments when they run short on tax revenues U.S. banks that cannot borrow elsewhere Governments in developing countries during currency crises The Federal Reserve's primary tool for changing the money supply is THE RESERVE REQUIREMENT OR THE DISCOUNT RATE OR OPEN MARKET OPERATIONS. In order to decrease the number of dollars in the U.S. economy (the money supply), the Federal Reserve will BUY OR SELL government bonds. 6. Using money creation to pay for government spending Consider Katmai, a hypothetical country that produces only salmon burgers. In 2019, a salmon burger is priced at $7.00. Complete the first row of the table with the quantity of salmon burgers that can be bought with $500. Hint: In this problem, assume it is not possible to buy a fraction of a salmon burger, and always round down to the nearest whole salmon burger. For example, if your calculations result in 1.5 salmon burgers, the answer should be 1 salmon burger. Price of a Salmon burger Salmon burgers Bought with $500 Year (Dollars) (Quantity) 2019 7.00 2020 Suppose the government of Katmai cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 30% by 2020. Assuming monetary neutrality holds, complete the second row of the table with the new price of a salmon burger and the new quantity of salmon burgers that can be bought rds Text Predictions: On Accessibility: Investigate ere to search Ei a WAaBbCcD Aab AaBOCCE AQBOCCD. AQBbOCD AOBbCCD( AaBbCcDc AoBbCCD AQBbCCD. AABBCCDE Heading 3 Title Subtitle Subtle Em... Emphasis Intense E... Strong Quote Intense Q... Subtle Ref... Styles Suppose the nominal interest rate on savings accounts is 12% per year, and both actual and expected inflation are equal to 4%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Expected Actual Nominal Real Real Interest Expected Actual Interest Interest Rate Inflation Inflation Rate Rate Time Period (Percent) (Percent) (Percent) (Percent) (Percent) Before 12 increase in MS Immediately 10 after increase in MS Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 4% to 10% per year. Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase in the money supply (MS) The unanticipated change in inflation arbitrarily harms BANKS OR DEPOSITORS. Now consider the long-run impact of the change in money growth and inflation. According to the Fisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will RISE OR FALL to I per year. 8. Identifying costs of inflation Taylor owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Taylor sends an employee to the bank four times per day to make deposits in an interest- bearing account that protects the store's revenues from the effects of inflation. This is an D Focus 42'F Mostly cloudyParagraph Font N To create or edit files, you'll need to renew your subscription Renew calculations result in 1.5 salmon burgers, the answer should be 1 salmon burger Price of a Salmon burger Salmon burgers Bought with $500 Year (Dollars) (Quantity) 2019 7.00 2020 Suppose the government of Katmai cannot raise sufficient tax revenue to pay its debts In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 30% by 2020. Assuming monetary neutrality holds, complete the second row of the table with the new price of a salmon burger and the new quantity of salmon burgers that can be bought with $500 in 2020. The impact of the government's decision to raise revenue by printing money on the value of money is known as the CLASSICAL DICHOTOMY OR FISHER EFFECT OR VELOCITY OF MONEY OR INFLATION TAX. 7. The Fisher effect and the cost of unexpected inflation Chris receives a portion of his income from his holdings of interest-bearing U.S government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4.5% per vear. find the nominal interest rate on Chris's Text Predictions: On x Accessibility: Investigate search aensed Product) L alexisfgr400@gmail.com A bCCD AaB AaBbCCD AaBbCCD( AQBbCCD( AQBBCCD( AaBbCCD( AQBbCCD( AQBbCCD.|AABBCODE ding 3 Title Subtitle Subtle Em... Emphasis Intense E... Strong Quote Intense Q... Subtle Ref... Styles rates on savings accounts immediately after the increase in the money supply (MS) The unanticipated change in inflation arbitrarily harms BANKS OR DEPOSITORS. Now consider the long-run impact of the change in money growth and inflation. According to the Fisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will RISE OR FALL to I per year. 8. Identifying costs of inflation Taylor owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Taylor sends an employee to the bank four times per day to make deposits in an interest- bearing account that protects the store's revenues from the effects of inflation. This is an example of the MENU COSTS OR SHOE-LEATHER COSTS OR UNIT-OF-ACCOUNT COSTS of inflation. 9. Inflation-induced tax distortions Focus 42.F Mostly cloudyB nter Paragraph Font Renew UBSCRIPTION To create or edit files, you'll need to renew your subscription Chris receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Chris's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Real After-Tax Inflation Interest Nominal Nominal Interest After-Tax Real Rate Rate Interest Rate Rate Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 3.0 4.5 9.5 4.5 Compared with lower inflation rates, a higher inflation rate will INCREASE OR DECREASE the after-tax real interest rate when the government taxes nominal interest income. This tends to ENCOURAGE OR DISCOURAGE saving, thereby INCREASE OR DECREASING the quantity of investment in the economy and INCREASING OR DECREASING the economy's long-run growth rate. 10. Problems and Applications Q4 Suppose that a country's inflation rate increases sharply. As a result, the inflation tax on holders of money DECREASES OR INCREASES True or False: Wealth in savings accounts is not subject to a change in the inflation tax because the real interest rate will increase with the rise in inflation. True False 273 words X Text Predictions: On Accessibility: Investigate Type here to search Ei a W