Question

In a(n) _______ open market operation, the Reserve Bank _______ the money supply by making an open market _______ of bonds in the overnight interbank market.

contractionary, reduces, purchase

expansionary, reduces, purchase

expansionary, increases, sale

contractionary, reduces, sale

2. Consider the country of Solow, which is described by the
Solow–Swan growth model with constant total factor productivity.
Let the saving rate θ = 0.75. Per capita output (y) is equal to 100
and the per capita capital stock (k) is 1000. For Solow to be in
steady state:

the depreciation rate is 0.025 and the population growth rate is
0.05

the sum of the depreciation rate and the population growth rate
must be less than 0.075

the depreciation rate is 0.25 and the population growth rate is
0.5

the depreciation rate and population growth rate must sum to
0.75

Answer #1

1. contractionary, reduces, sale (4th option)

In a(n) **contractionary**
open market operation, the Reserve Bank **reduces** the
money supply by making an open market **sale** of bonds
in the overnight interbank market.

A **contractionary** monetary
**policy** is a type of monetary
**policy** that is intended to reduce the rate of
monetary expansion to fight inflation. Hence, Reserve Bank sales
the bonds in order to reduce the money supply in the market.

I can only answer 1 question at a time, so I am solving question
1 only.

Please do rate me and mention doubts, if any, in the comments
section.

Suppose Richland has the production function YR=ARLR1/2KR1/2,
while Poorland has the production function YP=APLP1/2KP1/2. Assume
that total factor productivity (A) is fixed – i.e. not growing --
in each country, but that L and K are evolving as described in the
standard Solow model with population growth (i.e. their saving
rates are given by sR and sP, their depreciation rates are given by
dR and dP, and their population growth rates are given by nR and
nP.)
a) Write down...

a) In an open-market purchase, the Reserve Bank
____ government bonds and the supply of bank reserves ______.
A. buys; increases
B. buys; decreases
C. buys; does not change
D. sells; increases
b) If inflation does not adjust rapidly in the short run, then
when the Reserve Bank increases the nominal interest rate, in the
short run the real interest rate will:
A. increase
B. decrease
C. not change
D. equal the nominal interest rate
c) If planned aggregate spending...

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