OOincrease money demandOdecrease money demanddecrease the money supplyincrease the money supply Use the following diagram to answer the next question.Price LevellLRASY*AD1AD2Multiple ChoiceAD3A51Real GDPbrowser=0&launchUrl=https%253A 252F%252Fnewconnect.mheducation.comAssume the economy is initially at the full employment level of real GDP. If there is a decrease in imports, the Fed shouldincrease money demand.decrease money demandSaved

Aggregate demand:Aggregate Demand is when the total number of consumers have the desire to buy…

Answered: Assume the economy is initially at the…

Assume the economy is initially at the full employment level of real GDP. If there is a decrease in imports, the Fed should Multiple Choice increase money demand

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the velocity of money increases but money supply stays the same, we would tend to see Group of answer choices A) a rightward shift in Aggregate Demand. B) a leftward shift in Aggregate Supply. C) a decrease in nominal GDP. D) deflation. E) a decrease in real GDP.
When the Fed decreases the discount rate, banks are likely to the money supply their lending and A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
Suppose the economy is experiencing inflation. If the Federal Reserve enacts contractionary monetary policy, interest rates will likely Multiple Choice rise causing prices to decrease. fall causing prices to increase. fall causing prices to decrease. rise causing prices to increase
Applied Problems on Monetary Policy and Interest Rates 1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate).
During a period of inflation, an appropriate pair of policies for the Fed to implement would be to Group of answer choices raise the legal reserve requirement and lower the discount rate sell government securities and raise the discount rate increase the federal funds rate by purchasing government securities raise the discount rate and lower the legal reserve requirement
Both increases in the price level and increases in real GDP will decrease the demand for money True False
Explain how lowering the reserve requirement ratio by the central bank will affect the aggregate demand at any given price level. Use relevant graphs to support your answer.
Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money. Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate will , which causes aggregate demand to . If instead the Fed wants to stabilize aggregate demand, it should the money supply by government bonds.
Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money. Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate willfall , which causes aggregate demand torise .
If the money demand function is unstable and undergoes substantial, unpredictable changes, then the level of interest rates set by the central banks will provide more information about the stance of monetary policy than will the money supply. Is this statement true, false, or uncertain? Explain your answer
As a response to high inflation, in March 2022, the Federal Reserve System (Fed) approved its first interest rate hike since December 2018. However, inflation rate still remained very high and piked in June 2022. The last time inflation ran that high was in the 1980s. To bring down inflation, the Fed implemented more restrictive monetary policy and approved another interest rate hike of 0.75 percent in November 2022. The Fed decided to maintain the federal funds rate at a target level of 4%. What the Fed need do to achieve a higher target federal funds rate (how to implement monetary policy)? If CPI increased from 287.7 in the 2nd quarter (Q2) 2022 to 298.1 in the 3rd (Q3) 2022. Using CPI-based inflation rate, how much is real interest rate if the Fed sets nominal interest rate at 4%. Note: we assume velocity of money supply is constant.
Boblandia produces no oil. It starts at potential GDP with inflation equal to the Central Bank's inflation target. Boblandia then sees a significant increase in the price of oil. Which of the following is true (according to our models) if the Central Bank engages in inflation targeting? The Central Bank will enact expansionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact expansionary monetary policy. This action will put downward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put downward pressure on read GDP.