13. (Question 6 on p.347) Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, and real GDP (and the price level). A change in the nation's money supply (achieved by changing reserves in the banking system) will cause an opposite change in the interest rate. A reduction in the money supply will make funds increasingly (scarce, abundant ) and drive (up, down) their price (interest rate). The interest rate and investment spending are also (directly, inversely) related. A rising interest rate will make some investments (capital spending projects) unprofitable, so spending on those will (increase, decline ). Investment spending is part of aggregate demand, so they will move together, as will real GDP. A decline in spending (AD) will (increase, reduce ) inflationary pressure (and will ( increase, reduce) prices if they are downwardly flexible).

13. (Question 6 on p.347) Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, and real GDP (and the price level). A change in the nation's money supply (achieved by changing reserves in the banking system) will cause an opposite change in the interest rate. A reduction in the money supply will make funds increasingly (scarce, abundant ) and drive (up, down) their price (interest rate). The interest rate and investment spending are also (directly, inversely) related. A rising interest rate will make some investments (capital spending projects) unprofitable, so spending on those will (increase, decline ). Investment spending is part of aggregate demand, so they will move together, as will real GDP. A decline in spending (AD) will (increase, reduce ) inflationary pressure (and will ( increase, reduce) prices if they are downwardly flexible).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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TOPIC: Equilibrium in the money market NOTE: Everything you need will be in the picture. Thank you
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Change in the money supply
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