Purchase Solution

Money Supply & Reserve assistance

Not what you're looking for?

Ask Custom Question

1.a.Under what assumptions is the money supply curve vertical?

b.Make an argument for why the money supply curve could be upward-sloping.

2. In the spring of 2007, the Chinese central bank, The Peopleâ??s Bank of China, announced an increase in the reserve requirement for the countryâ??s banks. This was the seventh such increase in less than a year. During this same period, the Chinese economy was growing at over 11% per year.

a.Based on what you learned about monetary policy in lecture, explain why the Peopleâ??s Bank took this action.

b.A Hong Kong economist was quoted at the time as saying that these required reserve increases were â??not binding on banksâ?? capabilities to lend.â? Explain what reserve policy on the part of Chinese banks would diminish the effectiveness of the required ratio increase in achieving the goal you outlined in part a.

Purchase this Solution
Solution Summary

This explanation provides you a comprehensive argument relating to Money Supply & Reserve assistance

Solution Preview

Money Supply & Reserve

1.a.Under what assumptions is the money supply curve vertical?
The money supply is vertical when it is assumed that the money supply is totally inelastic. This happens when the Federal Reserve chooses a money policy to fix the value with no regard to the interest rate.
b.Make an argument for why the money supply curve could be upward-sloping.
The money supply curve could be upward-sloping reflecting the fact that higher the interest rate, the greater will be the availability of money supply. Consider the situation, when higher interest rates lead to individuals to save more money. This money is now available for lending. On the other hand higher interest rates induce businesses to borrow less. The ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
Recent Feedback
  • "I read your comments, and thank you for this feedback. Do I need to find other studies that applied this methodology Ive used? That's where I'm stuck at."
  • "Thank you kindly sir. "
  • "Excellent and well explained. --Thank you kindly. "
  • "Awesome notes. I appreciate you."
  • "I have the follow-up project and I will assign that to you very soon. "
Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • How Monetary Policy Helps Employment & Inflation

    Again the central bank or the Federal Reserve can reduce the amount of money they lend out or call in existing debts to reduce the money supply.

  • IS curve shifts and the Federal Reserve

    383478 The Federal Reserve System and the regulation of the money supply 1. The Federal Reserve System regulates the money supply primarily by: controlling the production of coins at the United States mint.

  • Goals of monetary policy are

    contact the money supply.

  • US Economy Function and Regulation

    Assistance Needed 75 words each Need assistance with the following: 1. What are the three functions of money, and why are they important?

  • Aggregate Demand Curve and Federal Reserve Policy

    A change in the real money supply can result either from a change in the normal money supply through Federal Reserve policy (holding the price level constant) or from a change in the price level ( holding the normal money supply constant).

  • Potential Money Supply Increase And Process of Creation

    Amount of money supply will be determined by the money multiplier Money multiplier represents the ability of a fractional-reserve banking system to create money within the economy, that is, for each dollar of reserves; the money supply is some multiple

  • GDP, unemployment, inflation, and interest rates

    Buying of government securities from bank to increase the money supply 3. Reduction in the variable reserve ratios like statutory liquidity ratio and cash reserve ratio. Thus monetary policy can change the money supply to change inflation.

  • Fed and Money Supply

    required reserve ratio in order to increase money supply

  • Money multiplier

    Money multiplier represents the ability of a fractional-reserve banking system to create money within the economy, that is, for each dollar of reserves; the money supply is some multiple of that value.

View More Related Solutions