Buad 641 Homework 3

Pg. 522

5) If the head of the Central Bank of Japan wanted to expand the supply of money in Japan in 2009, which of the following would do it? Explain.

* Increase the required reserve ratio

* No, doing this will lower the supply of money by requiring banks to lend out less.

* Decrease the required reserve ratio

* Yes, by requiring banks to keep less money in reserves, more money is released and available to become loans which will increase the money supply.

* Increase the discount rate

* No, when the discount rate is high, banks are discouraged to borrow money from the Fed so the money supply would decrease.

* Decrease the discount rate

* Yes, when the discount rate is low, banks tend to borrow more money from the Fed which would increase the amount that can be loaned and therefore increase the money supply.

* Buy government securities in the open market

* Yes, when a purchase of securities is made by the Central Bank of Japan, reserves are increased and an increase in the money supply is equal to the money multiplier times the change in reserves.

* Sell government securities in the open market

* No, when government securities are sold, this results in a decrease in reserves and a decrease in the money supply equal to the money multiplier times the change in reserves.

On the web, find the Federal Reserve website. What is the current level of M2? Has it grown over the past few quarters? What has been the growth rate? Who is currently on the Federal Reserve Board? How has the Federal Funds rate changed over the past 3 years?

Current M2 level is at approximately 10.98 trillion.

M2 Snapshot from 5Y

M2 Snapshot from 1Y

In the past few quarters, signs of an increase in economic policy has continued at a moderate pace. According to the graph below, there is an overall positive slope.

The current growth rate for the United States is approximately 2.8%.

Federal...