Fed cooperate with the U.S. Treasury

https://www.federalreserve.gov/aboutthefed/educational-tools/lecture-series-the-federalreserve-after-world-war-II.htm
a) How did the Fed cooperate with the U.S. Treasury during and immediately after World
War II?
b) Describe the Fed-Treasury Accord and evaluate whether it was effective in improving
economic conditions. Discuss the implications of the agreement.
c) What was a “lean against the wind” policy? Was it effective in the 1950s and early 1960s?
d) Describe exacerbating factors other than monetary policy that may have contributed to
the high rates of inflation and numerous recessions from the mid-1960s through the
1970s
e) Describe the conditions leading up to the 1981-82 recession. Summarize monetary policy
before and during the recession. What were Chairman Volker’s goals?
f) Define the term “Great Moderation.” Give examples of its characteristics?
Question 2) Essay Question: Please watch the Milton Friedman video on “How to Cure
Inflation” posted under Week 11, Wednesday 11/4 : Write about a 300-word summary of the
views expressed by Prof. Milton Friedman. In particular, your summary needs to address how
Prof. Friedman describe the following: cause of inflation, costs of inflation on society , what the
Fed can do to cope up with the problem of inflation, and how Japan cured its inflation problem.
Also, describe your key takeaways from the debate, which parts you agreed with and which
parts you disagreed with.
Question 3) If the required reserve ratio is 100 percent, could the Federal Reserve still change
the money supply with open market operations? Explain whether they could or could not.
Question 4) Suppose the quantity of money is greater than the quantity of money demanded.
In the short run, what occurs to set the quantity of money equal to the quantity of money
demanded?
Question 5) Use the money demand and money supply model to show graphically and briefly
explain the effect on the interest rate if real GDP increases.
Question 6) Use the money demand and money supply model to show graphically and explain
the effect on interest rates of the Federal Reserve’s open market purchase of Treasury
securities.
ECN 102, Fall 2020
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Question 7) The Fed conducts an open market sale of securities. Explain the effects of this
action in the short run on the nominal interest rate and in the long run on the value of money
and the price level.
Question 8) Suppose that banks launch an aggressive marketing campaign to get everyone to
use debit cards for every conceivable transaction. They offer prizes to new debit card holders
and introduce a charge on using a credit card. How would the demand for money and the
nominal interest rate change?
Question 9) If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the
real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year, calculate
the inflation rate, the growth rate of money, and the growth rate of nominal GDP.
Question 10) In 2007, the United States was at full employment. The quantity of money was
growing at 6.4 percent a year, the nominal interest rate was 4.4 percent a year, real GDP grew at
1.9 percent a year, and the inflation rate was 2.9 percent a year.
a) Calculate the real interest rate.
b) Was the velocity of circulation constant? (Hint: Use the quantity theory of money.) If the
velocity of circulation was not constant, how did it change?
Question 11) If the velocity of circulation is growing at 1 percent a year, the real interest rate is 2
percent a year, the nominal interest rate is 7 percent a year, and the growth rate of real GDP is 3
percent a year, calculate the inflation rate, the growth rate of money, and the growth rate of
nominal GDP.
Question 12) Assume that the consumption function for an economy is C = 1000 + .75Yd. You
are told that the level of taxes in this economy is $1000 and transfer payments=0, NX=0.
Fill in the empty cells.
Real
GDP
C I G Planned
Expenditure
(AE)
Unplanned
Inventory
Change
5000 1000 1000
7000 1000 1000
9000 1000 1000
Question 13) Given the equations for C, I, G, and NX below, what is the short run equilibrium
level of GDP? Suppose for simplicity taxes and transfer payments=0.
C = 2,000 + 0.9 Yd, I = 2,500, G = 3,000, NX = 400
Question 14) Assume the following behavioral equations for a macroeconomy:
C = 100 + .9Yd , I = 50, Taxes = 100 and G = 40 Transfer payments=0
 Calculate the short run equilibrium level of output.
ECN 102, Fall 2020
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Question 15) a) Using the table below, calculate the unplanned change in inventories for each
level of GDP, and explain what will happen to GDP or production in the economy?
Real
GDP
Consumptio
n
Planned
Investmen
t
Government
Purchases
Net
Exports
Planned
Aggregate
Expenditure
Unplanned
Change in
Inventories
Real GDP
Will…
$2,000 $1,600 $250 $250 $100
 2,500 2,000 250 250 100
 3,000 2,400 250 250 100
 3,500 2,800 250 250 100
b) Identify the level of real GDP at which the economy is in equilibrium. Explain why is that
particular level of real GDP the equilibrium in the short run?
c) Graphically show the short run equilibrium based on the above data with the help of the
Keynesian cross.
Question 16) Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is
$21,500, what is the marginal propensity to consume? Suppose for simplicity taxes and transfer
payments=0.
C = 1,500 + (MPC) Yd,
I = 1,000,
G = 2,000,
NX = -200