Exhibit: Policy Interaction Interest rate, r LM LM LM: IS IS YYYY Income, output, Y 8. (Exhibit: Policy Interaction) Based on the graph, starting from equilibrium at interest rate income Y, IS, and LM₁, if there is an increase in government spending that shifts the IS curve to IS, then in order to keep the interest rate constant the Federal Reserve should the money supply shifting to A) increase; LM B) decrease; LM₂ C) increase; L.Ms D) decrease; LM 9. In the IS-LM model, a decrease in the interest rate would be the result of a(n): A) increase in the money supply. B) increase in government purchases. C) decrease in taxes. D) increase in money demand.

Exhibit: Policy Interaction Interest rate, r LM LM LM: IS IS YYYY Income, output, Y 8. (Exhibit: Policy Interaction) Based on the graph, starting from equilibrium at interest rate income Y, IS, and LM₁, if there is an increase in government spending that shifts the IS curve to IS, then in order to keep the interest rate constant the Federal Reserve should the money supply shifting to A) increase; LM B) decrease; LM₂ C) increase; L.Ms D) decrease; LM 9. In the IS-LM model, a decrease in the interest rate would be the result of a(n): A) increase in the money supply. B) increase in government purchases. C) decrease in taxes. D) increase in 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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Determine whether the following statements are true or false:- a) With the increase of the prices the real money reserves increase. b) If, as a result of the increase of the price level, the demand for money increases, the aggregate demand curve shifts to the right. c) The increase of imports increases aggregate demand.
Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.
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Discuss the impact of monetary and fiscal policy in each of these special cases:4. 1.1. If investment does not depend on the interest rate, the IS curve is vertical.4.1.2. If money demand does not depend on the interest rate, the LM curve is vertical.
please fill in the blanks and finish the graph: The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has 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 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey symbol.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 new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. Use the green line…
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 12 10 8 2 0 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 = Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase…
Problem 1. Explain in detail what effect a Fed sale of bonds will have on: (1) the LM curve; (2) the IS curve; (3) the general equilibrium of the economy. Effect on LM Curve: Effect on IS Curve: Effect on General Equilibrium of The Economy.
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Please help me with 6. Thank you
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d) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.