Advanced Macroeconomics: Monetary Policies and Economic Cycles

In prisoners-of-war camps during WWII, cigarettes became a form of currency due to their high demand and scarcity. They were used for various transactions among the prisoners.

The correct answer is The Federal Deposit Insurance Corporation because it was established to insure the money in customers' accounts in case of bank failures, effectively eliminating bank panics and promoting stability in the banking system.

To decrease money supply, the Federal Reserve needs to implement contractionary monetary policy measures. Increasing the reserve requirement means banks have to hold more money in reserve, reducing the funds available for lending. Increasing the discount rate makes it more expensive for banks to borrow from the Fed, reducing the money supply. Selling bonds absorbs money from the economy and reduces the money supply further.

The federal funds rate refers to the interest rate that one bank charges another for overnight lending. It is an essential tool used by the Federal Reserve to control the country's money supply and influence the economy.

The Federal Open Market Committee consists of 7 members of the Board of Governors and 5 district presidents, not members of the House of Representatives, members appointed by the President, or members from various federal agencies.

In the class discussions of early commodity money, coffee beans were not mentioned as an example of a commodity that served as money. Instead, various commodities such as tobacco leaves, sugar, salt, nails, oxen, and rice were discussed as being used as money in different countries and at different times.

In this scenario, to increase equilibrium income in an economy facing deflation and less than full employment, the Fed should increase the supply of money, leading to a decrease in interest rates. Lower interest rates will encourage consumption and investment, boosting aggregate demand and ultimately increasing equilibrium income.

When the economy is below full employment and experiencing inflation, decreasing the money supply will increase interest rates. Higher interest rates will decrease consumption and investment, leading to a decrease in aggregate demand and equilibrium income.

The Federal Reserve aims to promote economic growth while maintaining low inflation to ensure a stable and healthy economy. Maximizing profits of commercial banks, high unemployment rate, and encouraging hyperinflation are not the primary goals of the Federal Reserve's monetary policy.

When there is a decrease in the money supply M1, it means that there is less money available in the economy. This leads to a movement from point A to point D in the money market graph, representing a decrease in the equilibrium quantity of money and an increase in the equilibrium interest rate.

In this scenario, an increase in government spending and money supply would shift the aggregate demand curve from A to C due to an increase in overall spending in the economy, alongside the increase in oil prices as a result of restricted output.

A movement from equilibrium point B to equilibrium point A would typically be associated with factors that shift the equilibrium towards a new point. Factors like increase in government spending, technological advances, decrease in production cost, or an increase in consumer confidence can lead to such movements. However, an increase in consumer confidence and a decrease in productivity are unlikely to result in such a shift.

A movement from equilibrium point C to equilibrium point B indicates a shift towards a new equilibrium. An increase in foreign income levels would likely lead to an increase in demand for goods and services, potentially shifting the equilibrium point from C to a point beyond B.

A significant improvement in technology would not be represented by any of the provided shifts as described in the question. Technological improvement would typically result in a shift in a different direction or parameter, rather than the ones presented here.

The Federal Reserve System was established in 1913 by the act of Congress to address financial instability and prevent future economic crises.

During the Great Depression, the U.S. money supply actually fell by 1/3 as a result of various economic factors leading to a decrease in the amount of money available in circulation.

The velocity of money refers to how quickly money is exchanged in an economy and is calculated by dividing the nominal gross domestic product (PY) by the money supply (M). It represents the average number of times a unit of money is spent on goods and services in a year.

The correct answer is that the reserve requirements of banks doubled, which means they were required to hold twice the amount of reserves, ultimately affecting lending and contributing to the economic downturn during that period.

The correct answer, The Aldrich-Vreeland Act, was passed in 1908 to provide emergency currency in the event of a financial crisis. While the other options played significant roles in shaping financial regulations, they were not the first successful attempt to eliminate bank panics.

The Humphrey-Hawkins Act, formally known as the Full Employment and Balanced Growth Act of 1978, requires the Federal Reserve to use its tools to achieve full employment and stable prices, making it the correct answer. The Glass-Steagall Act, Dodd-Frank Act, and Patriot Act do not pertain to this specific mandate regarding monetary policy.

Paul Volcker's restrictive monetary policy as chairman of the Federal Reserve during the late 1970s and early 1980s was a key factor in stabilizing the money supply and reducing business cycle fluctuations in the U.S. economy.

The Smoot-Hawley Act, officially known as the Tariff Act of 1930, raised tariffs on over 20,000 imported goods to protect American businesses during the Great Depression. However, it backfired by prompting foreign countries to retaliate with their own tariffs, further worsening the economic situation.

During his first 100 days in office, F.D.R. took the U.S. off the gold standard and legalized beer through the repeal of Prohibition. Additionally, he established the Federal Deposit Insurance Corporation as part of his New Deal policies.

The federal funds rate is set by the Federal Reserve through its monetary policy decisions, while interest rates set by individual banks, government spending, and currency in circulation are factors that the Fed has some level of control or influence over.

The correct formula to calculate the velocity of money in this scenario is 4MV=PY or PY/M((2000)(2)) / 1000 = 4000/1000, which results in a velocity of money of 4.

Changes in the amount of money circulating in an economy typically have an impact on variables such as inflation rate, unemployment rate, and interest rate. However, the full-employment level of real GDP is not directly affected by changes in the money supply under normal conditions.

When the Federal Open Market Committee buys government securities, it injects liquidity into the banking system. This increases the excess reserves of banks as they have more funds available than required by the reserve requirements.

A real business cycle is typically triggered by changes in economic policies or external shocks that impact business decisions and economic activity. A decrease in income tax rates can stimulate consumer spending and investment, leading to changes in overall economic activity and fluctuations in the business cycle.

When the inflation rate is high, the purchasing power of money decreases rapidly, making it less effective as a store of value. This is why high inflation rates can gradually erode this particular function of money.