Macro Unit 4 Application Activity
\nPart 1
\nThis time, NO FLIP VIDEO IS REQUIRED. Instead, you will need to complete and upload the
\nfollowing to the Unit 4 assignment folder under the Assessments tab on our Brightspace page:
\nBanks and the Creation of Money
\nLet\u2019s pretend that $1,000 is deposited in a bank, and that each bank loans out all of its excess
\nreserves. For each of the following required reserve ratios, calculate the amount the bank must
\nhold in required reserves, the amount that will be excess reserves and therefore can be loaned
\nout to borrowers, the deposit expansion multiplier, and the maximum amount that the money
\nsupply could increase if all excess reserves are loaned out to borrowers. The first one has been
\ndone for you because I love you.
\nXXXXXXXXXXXXXXX
\nRequired Reserve Ratio of 5%
\nRequired Reserve Ratio of 10%
\nRequired Reserve Ratio of 15%
\nRequired Reserves
\n$50
\nExcess Reserves
\n$950
\nDeposit Expansion Multiplier
\n20
\nMaximum Increase in the Money Supply
\n$19,000
\nTools of Monetary Policy
\nComplete the table so that is indicates how the Federal Reserve could use each of the three
\nmonetary policy tools to pursue an expansionary policy and a contractionary policy. One has
\ndone for you.
\nMonetary Policy
\nExpansionary Policy
\nContractionary Policy
\nOpen Market Operations
\nDiscount Rate
\nRaise the discount rate
\nReserve Requirements
\nFederal Reserve Actions and Their Effects
\nComplete the table by inserting an up arrow or a down arrow in order to best indicate the
\neffect of the specific Fed action. The first one has been done for you.
\nFederal Reserve Action
\nBank Reserves
\nMoney Supply
\nFederal Funds Rate
\nSold Treasury securities on the open market
\nBought Treasury securities on the open market
\nRaised the Discount Rate
\nLowered the Discount Rate
\nRaised the Reserve Requirement
\nLowered the Reserve Requirement
\nMore Fed Actions and Their Effects\u2026A.K.A. Monetary Policy In Action
\nLet\u2019s pretend the Federal Reserve wants to help the economy (AS\/AD equilibrium is to the left of
\nthe LRAS curve) move towards full-employment. Which type of monetary policy (expansionary
\nor contractionary) would the Fed most likely implement?
\nIf the Fed decides the best way to do this is to use open market operations, it would
\n___________________ (buy or sell) Treasury securities.
\nIn the short run, nominal interest rates should ________________________ (rise or fall)
\nbecause financial institutions have _______________________ (more or less) funds to lend out
\nbecause people have _____________________________ (bought or sold) their Treasury
\nsecurities to the Fed.
\nReal output in the short run should _______________________ (increase or decrease). This is
\nbecause with the ___________________________ (increase or decrease) in interest rates, the
\ninterest-rate sensitive components of aggregate demand (AD) such as consumption and
\ninvestment will ____________________________ (increase or decrease).
\nIn the short run, the average price level will ________________________________ (increase
\nor decrease) because the increase in demand can be met only if firms have the incentive to
\nproduce _________________________ (more or less). An increasing price level provides this
\nincentive.
\nTherefore, in summary, an expansionary monetary policy IN THE SHORT RUN will expand the
\nmoney supply, which in turn ________________________ (increases or decreases) AD, which
\nin turn tends to ______________________________ (increase or decrease) both the price level
\nand output.
\nPART 2 ON NEXT PAGE
\nPart 2
\nFor 15 of the 30 points of this Application Activity, you will need to complete at 70% of the Macro
\nUnit 4 Fall 2022 questions at our Knewton Alta site. These questions cover Chapters 14-15 in
\nour textbook. Please remember our Student invite link for our questions is
\nhttps:\/\/knerd.me\/zrsmqp<\/p>\n","protected":false},"excerpt":{"rendered":"
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