2. Equilibrium and disequilibrium in the money marketThe following diagram represents the money market in the United States, which is currently in equilibrium.INTEREST RATE (Percent)6.05.55.04.54.03.53.02.52.00.60.7Money supply0.91.01.11.2 1.30.8QUANTITY OF MONEY (Trillions of dollars)Money demandtheMoney demandMoney supply?Suppose the Federal Reserve announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this byShift either the money supply curve or the money demand curve, or both, to illustrate on the graph the effects of this policy.The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows:Because there ismoney in the financial system, the quantity of interest-bearing financial assets such as bonds demanded, which means that bond issuersuntil the new equilibrium interest rate is achieved.sell the bonds. This process continues

Money is a commodity received by general consent as a medium of economic exchange. It is the means…

2. Equilibrium and disequilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium. EST RATE (Percent) 6.0 5.5 5.0 4.5 4.0 Money supply Money demand Money supply ?

2. Equilibrium and disequilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium. EST RATE (Percent) 6.0 5.5 5.0 4.5 4.0 Money supply Money demand Money supply ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

2. Equilibrium and disequilibrium in the money market
The following diagram represents the money market in the United States, which is currently in equilibrium.
INTEREST RATE (Percent)
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
0.6
0.7
Money supply
0.9
1.0
1.1
1.2 1.3
0.8
QUANTITY OF MONEY (Trillions of dollars)
Money demand
the
Money demand
Money supply
?
Suppose the Federal Reserve announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by
Shift either the money supply curve or the money demand curve, or both, to illustrate on the graph the effects of this policy.
The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows:
Because there is
money in the financial system, the quantity of interest-bearing financial assets such as bonds demanded
, which means that bond issuers
until the new equilibrium interest rate is achieved.
sell the bonds. This process continues

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4. Velocity and the quantity equation Consider a simple economy that produces only jean jackets. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2021, the money supply was $400, the price of a jean jacket was $5.00, and the economy produced 800 jean jackets. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money Price Level (Dollars) (Dollars) 400 5.00 412 Year 2021 2022 Velocity of Money 10 The money supply grew at a rate of money 2021 to 2022 was 10 5.15 Quantity of Output (Jean jackets) 800 800 Nominal GDP (Dollars) 4,000.00 4,120.00 from 2021 to 2022. Since jean jacket output did not change from 2021 to 2022 and the velocity of the change in the money supply was reflected in changes in the price level. The inflation rate from