2. Equilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent) 6.0 00 Do graph and plot the points Money Supply 5.5 Money Demand 5.0 4.5 4.0 3.5 3.0 2.5 20 2.0 0.6 0.7 0.8 0.9 1.0 1.1 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 New Curve New Equilibrium This is how New Curve looks when it's on the graph (,) These needs to be filled out so I know what the coordinates are for New Curve This is how New Equilibrium look like when it's on the graph ( (,) + These needs to be filled out so I know what the coordinates are for New Equilibrium is Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 25 basis points, or 0.25%. It would achieve this by money supply or decreasing or the money demand increasing . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. 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 sell bonds. This process continues until the new equilibrium which means that bond issuers Can issue bonds at lower interest rates and still OR must raise the interest they pay to interest rate is achieved. Jess or more. decreases or increases.
2. Equilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent) 6.0 00 Do graph and plot the points Money Supply 5.5 Money Demand 5.0 4.5 4.0 3.5 3.0 2.5 20 2.0 0.6 0.7 0.8 0.9 1.0 1.1 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 New Curve New Equilibrium This is how New Curve looks when it's on the graph (,) These needs to be filled out so I know what the coordinates are for New Curve This is how New Equilibrium look like when it's on the graph ( (,) + These needs to be filled out so I know what the coordinates are for New Equilibrium is Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 25 basis points, or 0.25%. It would achieve this by money supply or decreasing or the money demand increasing . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. 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 sell bonds. This process continues until the new equilibrium which means that bond issuers Can issue bonds at lower interest rates and still OR must raise the interest they pay to interest rate is achieved. Jess or more. decreases or increases.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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TOPIC: Equilibrium in the money market
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Transcribed Image Text:2. Equilibrium in the money market
The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star.
INTEREST RATE (Percent)
6.0
00
Do graph and
plot the points
Money Supply
5.5
Money Demand
5.0
4.5
4.0
3.5
3.0
2.5
20
2.0
0.6
0.7
0.8
0.9
1.0
1.1
1.2
QUANTITY OF MONEY (Trillions of dollars)
1.3
New Curve
New Equilibrium
This is how New Curve looks
when it's on the graph
(,)
These needs to be filled out so I know
what the coordinates are for New Curve
This is how New Equilibrium look
like when it's on the graph
(
(,)
+
These needs to be filled out so I know what
the coordinates are for New Equilibrium is
Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 25 basis points, or 0.25%. It would achieve this by
money supply or
decreasing or the
money demand
increasing
. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place
the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money.
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
sell bonds. This process continues until the new equilibrium
which means that bond issuers Can issue bonds at lower interest rates and still
OR must raise the interest they pay to
interest rate is achieved.
Jess or more.
decreases or
increases.
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