2. The theory of liquidity preference and the downward-slopingaggregate demand curveThe following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixesthe 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.12Money Supply10Money DemandMoney SupplyMD12MD2102030405060MONEY (Billions of dollars)INTEREST RATE (Percent) After the decrease in the price level, the quantity of money demanded at the initial interest rate of 6% will belessthan the quantity ofmoney supplied by the Fed at this interest rate. People will try to decreasetheir money holdings. In order to do so, people will buybondsand other interest-bearing assets, and bond issuers will find that theycan offer lowerinterest rates until the money market reaches itsnew equilibrium at an interest rate of4%The following graph shows the economy's aggregate demand curve.Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve.180150Aggregate Demand1209060Aggregate Demand3020406080100120OUTPUT (Billions of dollars)The change in the interest rate that you found previously will cause residential and business investment spending to rise, leading toan increasein the quantity of output demanded in the economy.PRICE LEVEL

Money demand refers to the quantity of money that individuals and firms are willing to hold for…

2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes he 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.

2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes he 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.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 2PA

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I dont know if I plotted the lines correclty and answered the questions right.
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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
Answer everything in the photos including both of the graphs.
Rate of interest (%) 16 14 12 10 00 6. 4 2 0 40 80 B 120 160 200 Quantity of investment 144 240 280
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