The Monetary Transmission Mechanism

This is due between 6 a.m. and 10 p.m. on Friday, October 30.

must express your answer properly in order to get credit.

*Write answer with the correct sign:+ or -

* Write answer with the $ sign

* Write answer expressed to one decimal place.

[No commas - hint: there is no answer greater than +$999.9, nor less than -$999.9.]

*All answers are in billions of dollars so there is no need to write that out.

Examples of acceptable answers:+$45.6+$333.0-$72.7

Examples of unacceptable answers:+45.6$333-$72.7 billion

5 questions @ 4 pts. for 18 plus 2 bonus for 20 points total.

For the following five questions, assume the following characteristics of the monetary transmission mechanism:

The money multiplier is 4.55

Interest rates will change by 2.25% for every $125 billion change in the money supply.

Investment will change by $95 billion for every 1.5% change in the interest rate.

Income will change by $7.3 billion for every $3.8 billion change in investment.

Identify the change in income when the Fed does the following:

1.Buys $35 billion in bonds.

2.Buys $18 billion in bonds.

3.Buys $5.5 billion in bonds.

4.Sells $12 billion in bonds.

5.Sells $28 billion in bonds.