Interest rate 2% 4 6 8 10 Transaction demand for money $220 220 220 220 220 Asset demand for money $300 280 260 240 220 Money supply $460 460 460 460 460 1. The total demand for money curve in the above market for money would graph as a: A) vertical line. B) horizontal line. C) line sloping upward to the right. D) line sloping downward to the right.

Interest rate 2% 4 6 8 10 Transaction demand for money $220 220 220 220 220 Asset demand for money $300 280 260 240 220 Money supply $460 460 460 460 460 1. The total demand for money curve in the above market for money would graph as a: A) vertical line. B) horizontal line. C) line sloping upward to the right. D) line sloping downward to the right.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Figure 1: MS Interest Rate (%) 5% MD 150 Money (S million) 21. Refer to Figure 1. At an interest rate of 4%, there is a: a) excess demand for money and the interest rate will decline. b) excess demand for money and the interest rate will rise. c) excess supply of money and the interest rate will decline. d) excess supply of money and the interest rate will rise.
In the situation depicted above, an increase in the money supply from $100 billion to $150 billion will cause the equilibrium rate of interest to: Group of answer choices a)Decrease from 4 percent to 2 percent. b)Increase from 2 percent to 4 percent. c)Decrease from 6 percent to 2 percent. d)Increase from 4 percent to 6 percent. e)Decrease from 6 percent to 4 percent.
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Figure 3: MSo MS1 Interest Rate (%) 10% 8% 6% MD 100 200 Money (S million) 26. Refer to Figure 3. The money supply curve will shift from MS. to MS1, if: a) the Fed increases the reserve requirement. b) the price level increases. c) the equilibrium level of output decreases. d) the Fed buys U.S. government bonds in the open market.
3. The effect of changes in the money supply The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent) 6.0 5.5 Money Demand 5.0 4.5 4.0 3.5 3.0 2.5 20+ 0.6 07 Money Supply 0.9 1.0 1.1 0.8 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 New Curve New Equilibrium (?) Suppose the Federal Reserve (the Fed) announces that it is raising its target interest rate by 50 basis points, or 0.50%. It would achieve this by Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the a the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, there is an excess money at the initial equilibrium interest…
17. Assume that the required reserve ratio is 25%. If the Fed buys $5 million worth of government bonds from the public, the maximum change in the money supply is: a) -$20 million. (b) -$12.5 million. (c) $12.5 million. (d) $20 million.
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d
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. A well-known bank has specialized in adjustable-rate mortgages. They have originated 7 billion USD in adjustable-rate mortgages. This bank generally raises money by borrowing with shorter term loans and issuing fixed-interest rate Certificates of Deposit. The bank has 6 billion in short-term adjustable-rate loans to partly help fund the loan portfolio. The federal reserve has announced an increase in their target interest rate of 50 basis points (0.5%). What is the equation and solution.
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