Answered: Money Supply 6.0 5.5 New Curve Money…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by ______the ________. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place 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 rate. Individuals and businesses adjust their asset portfolios by _______bonds. As a result, the price of bonds_________ , and the interest rate______ . This process continues until the new equilibrium interest rate is achieved.

Money Supply
6.0
5.5
New Curve
Money Demand
5.0
4.5
New Equilibrium
4.0
3.5
3.0
2.5
2.0
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
QUANTITY OF MONEY (Trillions of dollars)
INTEREST RATE (Percent)

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