ECON2026 Money and Banking - 2022 Semester 1 HW Assignment
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ECON2026 Money and Banking - 2022 Semester 1 HW Assignment
Questions
1. Use the data on the M1 Money Stock (M1SL) and the Monetary Base (BOGMBASE) to answer the following questions: [20 marks]
● Calculate the values of the money multiplier using the data for June 2020 and June 2015.
● How much would a $100 million open market purchase of securities affect the M1 money supply in June 2020 and June 2015, respectively. Interpret your results.
2. Use the data on non-borrowed reserves (NONBORRES) and the federal funds rate (FEDFUNDS) to answer the following questions: [20 marks]
● Calculate the percent change in non-borrowed reserves and the percentage point change in the federal funds rate for June 2019 and June 2020, respectively.
● Is your answer to part (a) consistent with what you expect from the market for reserves? Please provide a graph to support your explanation.
3. Use the data on the personal consumption expenditure price index (PCECTPI), real GDP (GDPC1), an estimate of potential GDP (GDPPOT), and the federal funds rate (FEDFUNDS) to answer the questions below. For the price index, adjust the units setting to “Percent Change from Year Ago” to convert the data to the inflation rate. For the federal funds rate, change the frequency setting to “Quarterly.” Download the data into a spreadsheet. Assuming the inflation target is 2% and the equilibrium real fed
funds rate is 2%, calculate the inflation gap and the output gap for each quarter, from 2000 until the second quarter of 2020 (including the second quarter of 2020). Calculate the output gap as the percentage deviation of output from the potential level of output. [20 marks]
● Use the output and inflation gaps to calculate, for each quarter, the fed funds rate predicted by the Taylor rule. Assume that the weights on inflation stabilization and output stabilization are both 0.5. Compare the current (quarterly average) federal funds rate to the federal funds rate prescribed by the Taylor rule. Does the Taylor rule accurately predict the current rate? Briefly comment.
● Create a graph that compares the predicted Taylor rule values with the actual quarterly federal funds rate averages. How well, in general, does the Taylor rule prediction fit the average federal funds rate? Briefly explain.
4. In this question, use the data on the exchange rate of U.S. dollars per Australian dollars (DEXUSAL). Assume that a bottle of wine can be purchased in the US, for $20 (US dollars). The same bottle of wine is $50 in Australia (Australian dollars). [20 marks]
● Use the exchange rate in 15 April 2022 to calculate the real exchange rate of the bottle of wine in Australia per the bottle of wine in the US.
● Is the bottle of wine relatively more expensive in the US or in Australia? What price in Australian dollars would make the wine equally expensive in both countries?
5. Use the data on Personal Consumption Expenditures (PCEC), Personal Consumption Expenditures: Durable Goods (PCDG), Personal Consumption Expenditures: Nondurable Goods (PCND), and Personal Consumption Expenditures: Services (PCESV). [20 marks]
● According to 2020 the second quarter (Q2) data: What percentage of total household expenditures is devoted to the consumption of goods (both durable and nondurable goods)?
● Which specific component of household expenditures would be most impacted by a reduction in overall household spending? Explain.
2022-05-04