13. Suppose that the money demand function is:(--)ªUse the money demand equation along with the following table of values to find thevelocity for each period:ay== - 500iY (in billions)Interest RatePeriod112,0000.05Period212,5000.07Period312,2500.03Period Period4512,500 12,8000.050.07Period613,0000.04Period713,2000.06

According to the quantity theory of money: MV = PY Where M is the quantity of money V is the…

13. Suppose that the money demand function is: (1) K = Use the money demand equation along with the following table of values to find the velocity for each period: Y Y(in billions) Interest Rate - 500i Period 1 12,000 0.05 Period 2 12,500 0.07 Period Period Period Period 3 4 5 6 12,250 12,500 12,800 13,000 0.03 0.05 0.07 0.04 Period 7 13,200 0.06

13. Suppose that the money demand function is: (1) K = Use the money demand equation along with the following table of values to find the velocity for each period: Y Y(in billions) Interest Rate - 500i Period 1 12,000 0.05 Period 2 12,500 0.07 Period Period Period Period 3 4 5 6 12,250 12,500 12,800 13,000 0.03 0.05 0.07 0.04 Period 7 13,200 0.06

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Q3. Suppose that the money demand function is given by: Md=$Y (.25-i), where $Y is $100. (a) Derive the bond demand function (B) assuming that wealth is $50. (b) Calculate Md and Bd at interest rates of 5% (use .05) and 10% (use .10). SHOW WORK. (c) How does an increase in the interest rate affect the amount of money people are willing to hold, according to your calculations? How does an increase in the interest rate affect the quantity of bonds people are willing to hold? (d) Suppose the supply of money is currently $20.. Show that the equilibrium interest rate is 5% (.05). (e) Suppose the central bank wants the equilibrium interest rate to rise to 15% (.15). At what level should it set monetary policy? SHOW WORK. What kind of monetary policy (expansionary or contractionary) does this imply?
2. Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (1), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation. part 1 answer DRR = Ratio (4% or 0.04) CDR = % of money in wallets (3% or 0.03) = (1 + 0.03) / (0.04 + 0.03) = 1.03 / 0.07 Answer = 14.71 Therefor Every $1 in the bank will allow the bank to create $14.71
1. Consider the following table with data about monetary aggregates (billions of dollars, seasonally adjusted data): Date May 2012 Nov. 2012 Feb. 2013 May 2013 M1 2,262.6 2,405.5 2,477.9 2,534.7 M2 a) Calculate the annualized growth rate of M1 and M2 for the following periods: May 2012 May 2013 (one year), Nov. 2012-May 2013 (six months), and Feb. 2013-May 2013 (three months). b) Comment on the growth rates of these monetary aggregates. 9,870.3 10,298.3 10,424.7 10,598.9 Source: Federal Reserve System (H.6)
4. A common rule used for describing the conduct of monetary policy is the Taylor π = r + 0.5 (²-³) + 0.5(π — ñ), where r is the real rate of rule, given by i interest and it is a target rate of inflation. Assume that the real interest rate at full employment to be constant at 2%. Assume also that the same 2% represents target inflation. a. What is the nominal interest rate i when inflation and output are at their equilibrium target level? b. Suppose that the central bank observes a rate of inflation of 4%. With all other variables at the same level. What is the nominal interest rate the central bank would target according to the Taylor rule?
3.Consider an independently run hotel in Krems and briefly discuss how it might be affected by the following scenarios: a) A rise in interest rates b) A fall in unemployment c) A fall in the exchange rate (i.e., the value of the euro decreases) d) A rise in inflation
11. If a yield curve looks like the one shown in the figure below, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions for the inflation rate in the future? Yield to Maturity Term to Maturity
6. One of the banking innovations in the 1960s was the payment of interest on certain types of demand deposits. Assume that interest is paid on money at the nominal rate Rm, which equals (R − x), where x is the nominal return on bonds, which is exogenously determined by market structures and the cost of servicing deposits. (i) Use Baumol’s transactions demand model to derive the demand function for money. (ii) Generalizing the above demand function to md(y, R, x), shows the behavior of the LM curve for shifts in x and P. (iii) What is the effect of an increase in x on aggregate demand, output and price level in the neoclassical model? (iv) Assuming that both R and x always increase by the expected rate of inﬂation, do (ii) and (iii) again.
You are given foreign currency forecasts for a number of currency pairs in Table 1. You are a forextrader and wish to use the forecasts for September 2021 to make a profit. Obtain forward rates for five chosen currency pairs from table 1 with a maturity of September2021.
Interest rates and bond prices vary directly during inflation and inversely during recessions. 1) True 2) False
A large money center bank uses the US treasury yield curve to determine the appropriate level for its lending rates. To compensate for the costs of making a loan, the bank needs to charge 1.8% point more than the expected future interest rate on a Treasury security with the same maturity if it is to make a profit. The manager is considering a loan request from a customer seeking a one year loan that starts 2 years from today. If the two-year Treasury Strip rate is 4.1% and the three-year Treasury strip rate is 5.5%, at what minimum rate should the manager be willing to make the loan commitment?Enter your answer as a % to two decimal places. Assume the expectation theory of rates is valid and all liquidity premiums are zero.
. A well-known bank has specialized in adjustable-rate mortgages. They have originated 7 billion USD in adjustable-rate mortgages. This bank generally raises money by borrowing with shorter term loans and issuing fixed-interest rate Certificates of Deposit. The bank has 6 billion in short-term adjustable-rate loans to partly help fund the loan portfolio. The federal reserve has announced an increase in their target interest rate of 50 basis points (0.5%). What is the equation and solution.
7) Explain what is meant by the ‘Zero Lower Bound’ in relation to interest rates and suggest how it might be avoided.