5. Targeting the money supply or interest rates The following graph shows an increase in the demand for money from 2013 (MD2013) to 2014 (MD2014) caused by an increase in aggregate output. The initial equilibrium interest rate in 2013 was Suppose the Federal Reserve (the Fed) chooses not to alter the money supply between 2013 and 2014. On the following graph, use the grey point (star symbol) to indicate the equilibrium interest rate and quantity of money that would result from this lack of intervention. NOMINAL INTEREST RATE (Percent) 6.50 6.25 6.00 5.75 5.50 5.25 5.00 4.75 4.50 Money Supply 0.9 1.0 1.1 1.2 1.3 1.4 1.5 QUANTITY OF MONEY (Trillions of dollars) MD 2014 MD 2013 No Intervention New MS Curve With Intervention (?)

5. Targeting the money supply or interest rates The following graph shows an increase in the demand for money from 2013 (MD2013) to 2014 (MD2014) caused by an increase in aggregate output. The initial equilibrium interest rate in 2013 was Suppose the Federal Reserve (the Fed) chooses not to alter the money supply between 2013 and 2014. On the following graph, use the grey point (star symbol) to indicate the equilibrium interest rate and quantity of money that would result from this lack of intervention. NOMINAL INTEREST RATE (Percent) 6.50 6.25 6.00 5.75 5.50 5.25 5.00 4.75 4.50 Money Supply 0.9 1.0 1.1 1.2 1.3 1.4 1.5 QUANTITY OF MONEY (Trillions of dollars) MD 2014 MD 2013 No Intervention New MS Curve With Intervention (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assuming the Fed has an interest-rate target, illustrate with a diagram of the market for reserves to explain why an increase in the demand for reserves leads to a rise in the money supply.
Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $100. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 25 10 A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions.…
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 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. 12 Money Supply 10 Money Demand Money Supply MD1 2 MD2 10 20 30 40 50 60 MONEY (Billions of dollars) INTEREST RATE (Percent)
5. Changes in the money supply The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. INTEREST RATE (Percent) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 0 Money Demand + 0.1 Money Supply 0.2 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 New MS Curve New Equilibrium ?
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The money market in the United States and the investment demand curve are as shown in the graphs below. Currently, the Federal Reserve has a money supply of $40 billion and the money market is in equilibrium. a. Suppose the Federal Reserve increases the money supply by $20 billion. Use the money market and investment demand graphs to show the effects of the increase in the money supply on interest rates, money demand, and investment. Instructions: In the money market graph, use the tool provided 'MS,1' to draw a new money supply curve. Plot only the endpoints of the line (2 points total). Use the tool provided 'New Equilibrium' to plot a new equilibrium interest rate.
how to calculate the equilibrium price.....
Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it ha a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 6.0 5.5 5.0 45 4.0 35 3.0 25 20 0 Money Demand 0.1 Money Supply 0.2 03 0.4 0.5 0.6 0.7 MONEY (Trillions of dollars) 08 4 New MS Curve New Equilibrium Ⓒ image 1 Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the…
6. Targeting the money supply or interest rates The following graph shows an increase in the demand for money from 2020 (MD2020 to 2021 ( MD202) caused by an increase in aggregate output. The initial equilibrium interest rate in 2020 was Suppose the Federal Reserve (the Fed) chooses not to alter the money supply between 2020 and 2021. On the following graph, use the grey point (star symbol) to indicate the equilibrium interest rate and quantity of money that would result from this lack of intervention. NOMINAL INTEREST RATE (Percent) 6.50 Money Supply 6.25 6.00 5.75 5.50 5.25 5.00 4.75 4.50 0.9 1.0 1.1 1.2 1.3 14 1.5 QUANTITY OF MONEY (Trillions of dollars) MD 2021 MD 2020 No Intervention New MS Curve + With Intervention Suppose the Fed wants to keep 2021 interest rates at their 2020 level. On the previous graph, place the green line (triangle symbols) to indicate the new money supply curve if the Fed follows this policy. Then use the black point (plus symbol) to indicate the…