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M1 money growth in the U.S. was about 15% in 2011 and 2012, and 10% in 2013. Over the same time period, the yield on 3-month Treasury bills was close to 0%. Given these high rates of money growth, why did interest rates stay so low, rather than increase? What does this say about the income, price-level, and expected-inflation effects?

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

M1 money growth in the U.S. was about 16% in 2008, 7% in 2009 and 9% in 2010. Over the same period, the yield on 3-month T-bills fell from almost 3% to close to 0%. Given these high rates of money growth, why did the interest rates fall, rather than increase?
What does this say about the income, price level and expected inflation effects?

M1 money growth in the U.S. was about 16% in 2008, 7% in 2009 and 9% in 2010. Over the same time period, the yield on 3-month T-bills fell from almost 3% to close to 0%. Given these high rates of money growth, why did the interest rates fall, rather than increase? What does this say about the income, price level and expected inflation effects? Draw a graph to illustrate all these effects.

6. Other things being​ equal, the M1 money supply varies in the same direction as the magnitude of

A.​k, the​ currency/DDO ratio

B.rr​ , the average required reserve ratio

C.​re, the​ banks’ desired excess reserves ratio

D.none of the above

7. Suppose that discounts and advances​ (Fed loans of reserves to​ banks) increase​ $200 million, Treasury deposits at the Fed increase​ $500 million, and the Fed buys​ $700 million of Treasury bills from dealers. The net effect of these 3 transactions is to

A.increase bank reserves by​ $1,000 million

B.increase bank reserves by​ $1,400 million

C.increase bank reserves by​ $400 billion

D.leave bank reserves unchanged

8. Other things being equal​ (assuming the Fed takes no​ action), a sharp increase in interest rates caused by market forces in a strong economic recovery is likely to

A.increase​ k, the currency​ ratio, thus reducing the money supply

B.reduce the monetary​ base, thus increasing the money supply

C.reduce re​ , the desired excess reserve​ ratio, thus increasing the money supply

D.do none of the above

9. The Federal Reserve is able to control most accurately in the short run

A.​B, the monetary base

B.​k, the currency ratio

C.re​ , the​ bank’s desired excess reserve ratio

D.M1, the U.S. money supply

10. The Federal Reserve implemented​ “operation twist” in​ 2011-2012 by

A.simultaneously buying​ long-term and selling​ short-term Treasury securities

B.heavy purchases of both​ long-term and​ short-term Treasury securities

C.lowering the federal funds rate target and buying​ long-term bonds

D.purchasing​ short-term securities and buying​ mortgage-backed bonds

11. During​ 2008-2014, Fed Chairman Ben Bernanke drew a lot of criticism for

A.maintaining​ short-term interest rates at extremely low levels for an extended period

B.bailing out large banks that would otherwise have failed

C.conducting the quantitative easing policy for about six years

D.all of the above

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