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- Use the following diagram of the market for money to answer the next question. Interest Rate 3 O Sm Dm Quantity of Money Multiple Choice The downward slope of the money demand curve Dm is best explained in terms of the transactions demand for monev.The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the left? a. an increase in the price level b. a decrease in the price level c. a decrease in real GDP d. an increase in real GDP ہے
- The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. a) What happens to prices? b) What happens to nominal interest rate? c) Why might the government be doing this?The graph shows the demand for money curve and the supply of money curve. The Fed decreases the quantity of real money supplied to $3.9 trillion. Draw a new MS curve that shows the effect of the Fed's action. Label it. Draw a point at the new equilibrium quantity of money and interest rate. Before the Fed decreases the quantity of money, the equilibrium interest rate is percent a year. After the Fed decreases the quantity of money, at an interest rate of 4 percent a year, people want to hold money than the quantity supplied, so they bonds. A. more; sell B. less; buy C. less; sell D. more; buy The price of a bond A. falls; falls O B. rises; falls and the interest rate 8- 7- 6- 5- 4- 3- 2- 1- Nominal interest rate (percent per year) 4 0+ 3.8 MS 4.0 MD 4.0 4.1 3.9 Quantity of money (trillions of 2009 dollars) >>> Draw only the objects specified in the questi 4.2What quantity is measured along the horizontal axis? the price level O the quantity of money O the real interest rate On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. O the value of money 1.125- 1 0.875 0.75 0.625 + 05 0375 + 025 0.125- MS 5,000 MD₂ MD₁
- Quantity of Money Demanded Which line in the above graph would best reflect the slope of the transactions demand for money curve? Line 2 Line 4 Line 3 Line 1 Rate of Interest 2.The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 150 to 175. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. INTEREST RATE (Percent) 18 15 12 60 3 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply (?) After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. People will try to other interest-bearing assets, and bond issuers will find that they equilibrium at an interest rate of % than the quantity of money bonds and interest rates until the money market reaches its new their money holdings. In order to do so, people willWhen the supply of money increases, what happens to the interest rate? A. the interest rate decreases B. the interest rate increases Thanks z z
- Draw a graph with the quantity of money on the horizontal axis and the interest rate on the vertical axis. Initially, the money supply curve is vertical because its determined by the Fed. The demand for money curve slopes downward, indicating the negative relationship between the interest rate and the quantity of money demanded.If interest rates decrease: O the quantity of money demanded will not change. O the money demand curve will shift to the right. the quantity of money demanded will decrease. O the money demand curve will shit to the left. the quantity of money demanded will increase.The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "“r"? Figure 15.2 interest rate S* S' r* B r r' m* m m' quantity of money a. There will be an excess demand for money. b. The Fed will buy U.S. Treasury securities. c. The quantity of money demanded will fall. d. The quantity of money supplied will fall. e. There will be an excess supply of money.