# Hi, I did not do good on my Econ Midterm and I want to do really good on the final so having the answers to these questions would help me to study.

Hi, I did not do good on my Econ Midterm and I want to do really good on the final so having the answers to these questions would help me to study. 1. Pretend you are in charge of conducting monetary policy at the New York Fed and you have the following initial conditions.Initial Conditionsrr/D = .10C = 400 bD = 800 bER = 0M = C + D Given the above information (show all work on your exam sheet):i) Calculate the MB.ii) Calculate the money multiplier (mm).iii) What is the money supply (use MS = mm x MB)?2.If Rd = 200 – 40 iff, given the information above, what is the market clearing federal funds rate? Assume that this is the target for the federal funds rate. Show all work. NOTE: To calculate the market clearing federal funds rate, you first need Rs. Rs is made up of required reserves and excess reserves. Here ER=0 so to find Rs, take the value for rr/D and multiply it by the value for D. Then you will be able to solve for the market clearing federal funds rate.In the space on your exam sheet, draw a reserve market diagram depicting exactly what is going on here! Label the equilibrium point as point A.3.Suppose that due to whatever reason, reserve demand changes and you forecast the reserve demand to now be Rd = 240 – 40 iff. In order to keep the federal funds rate at target, what must the open market desk do? Be specific and show this development in your picture on your exam sheet (label the new equilibrium as point B).4.Suppose the alternative, that the open market desk does nothing different, that is, they hold the amount of reserves constant. What happens in the reserve market? What is the market clearing fed funds rate now? Label this development, that is, the new equilibrium as point C. Be sure to show all work.5. Let’s go back to the fall of 2008 when we were at the height of the financial crisis. Pretend you are steering the cruise ship and your goal is to keep interest rates steady in the money market.For simplicity, we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%.Initial Conditions before the fall of 2008mm = money multiplier = 1.6MB = monetary base = 1500Money DemandMd = P X [ a0 + .5 (Y) – 200 (i) ]Md = 1 X [ 1000 + .5 (4000) – 200 (i) ]Solve for the money market clearing rate of interest (show your work on your exam sheet). Now draw a money market diagram labeling this initial equilibrium in the money market as point A on your exam sheet.6.We now experience a shock to the money multiplier so that the new value of the money multiplier is now 0.8. Given that we are in the fall of 2008, what caused such a shock to the money multiplier?HTML Editor16.In addition to the shock to the money multiplier as in Question 15, we experience two more shocks that influence the money demand curve: The new, money demand curve is now equal to:Md = 1 X [ 1500 + .5 (3800) – 200 (i) ]Explain why we would expect this to happen to the money demand function during the fall of 2008. Be sure to discuss both of the shocks to money demand.7.Given that your job is to keep interest rates constant at their level in Question 14, what must you do in terms of open market operations given the shock to the money multiplier and the two shocks to money demand? Show all your work on your exam sheet.Label this point as point B on the diagram on your exam sheet.

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