1)If central bank attempts to peg the nominal interest rate at 4 percent by buying domestic government bonds, then every time the nominal interest rate exceeds 4 percent, the most likely effect of the central bank’s policy will be: rapid expansion of bank reserves, rapid growth in the money supply and inflation. what i am confused is that when expand the bank reserves, that leads to increase money supply coz banks need to reserve more money on hand from deposits, is there anything i am missing? 2)an analyst conducts a two-tailed t-test to determine whether a sample mean involving 100 observations differs from a theoretical mean of zero. the computed t-statistic is 2.90. using a 5 percent significance level, which of the following conclusions is the most appropriate to reach? b) accept the null hypothesis that the sample mean is not significantly different from zero. c) reject the alternative hypothesis that the sample mean is significantly different from zero. d) reject the null hypothesis and accept the alternative hypothesis that the sample mean is significantly different from zero. i am totally lost in this question, please help me with your explaination. many thanks!!!

Result to the second question: 1-step: Ho: u equal 0 Ha: u different from 0 t statistic= 2.90 2-step: t-test at 5% significance= considering that the sample is >30, than a good approximation is the Z value at 95%, which is 1.96 Solution: Because the t-statistic is above the value reported in the table (2.9>1.96) we reject the null hypothesis and accept the alternative hypothesis tha the sample is significantly different from zero.

Answer to the First question: Expansion of bank reserves will lead to an in money supply in circulation as the bank will issue government bond in order to increase reserve. As a result, money supply will increase resulting in higher inflation Money supply is important because it is linked to inflation by the "monetary exchange equation MV = PQ or P=MV/Q where M is the total dollars in the nation’s money supply • v is the number of times per year each dollar is spent • P is the average price of all the goods and services sold during the year • Q is the quantity of goods and services sold during the year Therefore, if the numerator increases (MV) more than the denominator (Q), inflation will rise §.

The government buys bonds, money are pomped in the market, this will rapidly increase reserves at banks, banks will in turn increase the supply of loanable funds (surplus of reserves), at decreased rates until the extrareserves are consumed. This will drive up consumption and investment, and will bring increase of prices and inflation as strangedays shows.

gingerduck, don’t confuse increasing the reserve ratio (which lowers reserves), and increasing reserves (which means having more money with banks).

To strangedays, thanks, why i keep forgetting what i have studied. @@ To dreary. bank reserve is not the same as reserve ratio??? i thught they are the same thing that’s why i chose a wrong answer!!! but thanks so much~ strangedays Wrote: ------------------------------------------------------- > Result to the second question: > > 1-step: > Ho: u equal 0 > > Ha: u different from 0 > > t statistic= 2.90 > > 2-step: > t-test at 5% significance= considering that the > sample is >30, than a good approximation is the Z > value at 95%, which is 1.96 > > Solution: > Because the t-statistic is above the value > reported in the table (2.9>1.96) we reject the > null hypothesis and accept the alternative > hypothesis tha the sample is significantly > different from zero.