Interest rate Answer Bank increase in theprice levelInterest rate10%98Dง2Interest rate10%Money supply98Money supply7766554Money demand (1)4332210Money demand0123456 7 8 9 101234Money (in billions)Money demandMoney demand (1)5 6 7 8 9 10Money (in billions)Answer Bankdecrease in the price levelincrease in outputdecrease in outputincrease in the price level

The money market attains equilibrium when the funds available with the surplus units are exactly…

Interest rate 10% 10% 9 8 Money supply 9 Interest rate Money supply 8 7 7 6 6 5 5 Money demand 4 4 Money demand (1) 3 2 1 Money demand 1 2 3 4 5 6 7 8 9 10 Money (in billions) 2 1 Money demand (1) 0 123 4 5 6 7 8 9 10 Money (in billions) Answer Bank decrease in the price level increase in output decrease in output increase in the price level

Interest rate 10% 10% 9 8 Money supply 9 Interest rate Money supply 8 7 7 6 6 5 5 Money demand 4 4 Money demand (1) 3 2 1 Money demand 1 2 3 4 5 6 7 8 9 10 Money (in billions) 2 1 Money demand (1) 0 123 4 5 6 7 8 9 10 Money (in billions) Answer Bank decrease in the price level increase in output decrease in output increase in the price level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(Market Interest Rate) With a diagram, show how the supply of money and the demand for money determine the rate of interest. Explain the shapes of the supply curve and the demand curve
(Money Demand) Suppose that you never carry cash. Your pay- check of $1,000 per month is deposited directly into your checking account, and you spend your money at a constant rate so that at the end of each month your checking account balance is zero. You are paid $500 twice monthly rather than $1,000 each month. You are uncertain about your total spending each month. iii. You spend a lot at the beginning of the month (e.g., for rent) and little at the end of the month. iv. Your monthly income increases.
6. Monetary policy in the long run Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose the real GDP of this economy grows at an annual rate of 2%. If the velocity of money is constant, the central bank can maintain the price level at 100 by means of which of the following? Expanding the money supply by 2% per year O Reducing the money supply by 2% per year les of O Keeping the money supply constant Suppose the central bank enacts an unanticipated restrictive monetary policy. As a result, the supply of loanable funds leading to a in short-term interest rates. The following graph shows the goods and services market of this economy at full employment. Assume that potential output remains constant. Adjust the graph to show the long-run effect of an unanticipated restrictive monetary policy on the goods and services market by dragging the 511 8/2/ aggregate demand (AD) curve, the short-run aggregate supply (AS) curve, or…
Question 3a) What are the functions of money?b) Draw diagrams illustrating the impact on the demand for money, the supply of money and the equilibrium interest rate, of each of the following. Explain what is going on in the money market in each case.(i) The central bank sells securities on the open market(ii) The economy grows (GDP increases) but the central bank moves tokeep interest rates constant.
3) Answer these three sub-parts a) The two things that are certainly “money” in the U.S. economy are_______________________________ and _____________________________________. b) When the Federal Reserve buys bonds in the open market, this (increases, reduces, leaves unchanged) the U.S. money supply. c) When banks hold fractional reserves, this affects the size of the moneysupply (True or False)
INTEREST RATE (Percent) 18 15 2 so 3 0 0 20 Money Supply Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to will bonds and other interest-bearing assets, and bond issuers will realize that they equilibrium is restored in the money market at an interest rate of % than the quantity of money their money holdings. In order to do so, they interest rates until
Question 7 [9 Marks) Any change in the demand for money or supply of money will cause a temporary money market disequilibrium. The graph below takes a look at how the market for money transitions from a state of disequilibrium back to a state of equilibrium assuming a decrease in the demand for money. Interest rate (percent) Required: Panel (a) D₂ D M Quantity of money per period Price of bonds Panel (b) D₁ D₂ Q₁ Q₂ Quantity of bonds per period Using the graph above, fully discuss how a market for money and a market for bonds go back to a state of equilibrium following a temporary disequilibrium.
1---consider a consumer who earns income each month. person has to spend each month on essential goods, such as food and personal. person has no access to reliable savings, so person must spend her entire income each month. The consumer is interested in taking a loan to finance a large purchase. The cost of capital for banks is fixed at each month and the monthly interest rate charged to borrowers is . Both and are equal to one plus the interest rate as we are used to seeing it – e.g., if a loan charges 5% monthly interest, then = 1.05 2---What is the largest nonessential purchase that the consumer can make each month without borrowing? Express it as a function of y c 3--Under the zero profit condition for lenders (i.e. banks), what will the interest rate charged to borrowers be? Assume there is no risk of default and no fixed costs and express it as a function of(capital k), y,c 4--What is the borrower’s monthly disposable income (exclusive of essential purchases) with a loan, under…
1-) a) What is the important of Central Bank for a country's economy? Why? What are its powers?b) Why should the Central Bank be independent? What are the independence criterias of a Central Bank? Please explain. Please include deep explanation
3. 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 3% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. (?) INTEREST RATE (Percent) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0 Money Demand 0.1 Money Supply 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.2 0.6 0.7 0.8 New MS Curve New Equilibrium Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage point. 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…
The break-even volume is the point at which ________. Select one: a. the production of one more unit will not lead to increase in demand b. demand equals supply c. the total revenue and total cost curves intersect d. the company can pay off all its long-term debt
6. Delegated Monitoring Model: Suppose the central bank has increased the interest rate and depositors now require a 10% return instead. All other parameters are exactly the same as in the notes. Calculate the expected profits for the borrowers and the bank, and intuitively explain how they are different from the case when the required return is 5%.