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

See similar textbooks

Similar questions

INTEREST RATE (Percent) 3 6 Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 18 Money Supply 15 12 0 0 10 20 30 Money Demand 40 50 60 MONEY (Billions of dollars) Money Demand Money Supply Ⓡ
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).
Figure 31-3 On the following graph, MS represents the money supply and MD represents money demand. VALUE OF MONEY 0.6 0.45 5000 MS. MS. 9000 QUANTITY OF MONEY MO Refer to Figure 31-3. At the end of the first year, the relevant money-supply curve was the one labeled MS]. At the end of the second year, the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year? 8.3 percent -33 percent 33 percent -25 percent
60. Suppose the central bank wishes to increase the money supply directly. To do so, it could buy government securities on the open market. sell some of its foreign currency assets. sell government securities on the open market. change the price level. reduce its deposits at commercial banks.
4. Velocity and the quantity equation Consider a simple economy that produces only pens. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2018, the money supply was $360, the price of a pen was $4.50, and the economy produced 800 pens. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money Price Level Quantity of Output Nominal GDP Year (Dollars) Velocity of Money (Dollars) (Pens) (Dollars) 2018 360 4.50 800 2019 378 10 800 The money supply grew at a rate of from 2018 to 2019. Since pen output did not change from 2018 to 2019 and the velocity of money the change in the money supply was reflected in changes in the price level. The inflation rate from 2018 to 2019 was
QUESTION 3 When a customer takes cash from a drawer in his home and deposits it into his saving account, the composition of the money supply will change immediately and the size of the money supply may eventually change. Illustrate and explain the process by which this action may change the money supply in economy. ***END OF QUESTION PAPER*** States) E Accessibility: Investigate
4. The equation of exchange The equation of exchange is given by M x V = P x Y, where M is the money supply, V is the velocity of money, P is the economy's price level, and Y is real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 18 15 12 3 0 0 3 AS 6 9 12 REAL GDP (Trillions of dollars) Nominal GDP in this economy is trillion. AD 15 18 If the velocity of money is 2, the money supply in this economy is AD AS
Attempts 2. The theory of liquidity preference and the downward-sloping aggregate-demand curve The following graph shows the money market in a hypothetical economy. Assume that the central bank fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. 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) Average/4 18 15 1-3°C Cloudy Money Supply Money Demand Money Demand 1 Money Supply T Q Search 2016 W acer
Typed answer.
Analyse the impact of these events on the price level and total output of an economy in the short term. If policymakers were to use monetary policy to actively stabilize the economy, in which direction should they move the money supply and interest rate and show the effects of these policies? Please discuss your answers with appropriate graphs. - (a) The government raises taxes and reduces expenditures to balance its budget. (b) Enterprises in the economy are pessimistic about the economy in the future. - (c) Foreigners increase their taste for domestically produced beef. (d) The money wage rate rises.
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
2. Critical analysis Q8 Indicate how each action in the following table would affect the money supply. Action Increase Money Supply Decrease Money Supply A purchase by the Fed of $100 million in U.S. securities from a commercial bank A sale by the Fed of $200 million in U.S. securities to a private investor