Nominal interest rate (percent per year) Nominal interest rate 7.0 (percent) 6.0 5.0 4.00 4.0 MS Central bank targets: Quantity of money O Monetary base Excess demand for money. People sell bonds and the interest rate rises MD 10 11 12 Quantity of money (trillions of dollars)

Nominal interest rate (percent per year) Nominal interest rate 7.0 (percent) 6.0 5.0 4.00 4.0 MS Central bank targets: Quantity of money O Monetary base Excess demand for money. People sell bonds and the interest rate rises MD 10 11 12 Quantity of money (trillions of dollars)

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter15: Monetary Theory And Policy

Section: Chapter Questions

Problem 1.2P

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Question

In the graph you've just explored, is the money market in equilibrium if the interest rate is 4 percent per year? _______. The quantity of money demanded is _______ trillion and the quantity of money supplied is _______ trillion, so there is _______.

A. Yes; $10; $10; an equilibrium

B. No; $11; $9; an excess demand of $2 trillion

C. No; $9; $11; an excess supply of $2 trillion

Nominal interest rate (percent per year)
Nominal
interest rate 7.0
(percent)
6.0
5.0
4.00 4.0
9
MS
Central bank targets: Quantity of money O
Monetary base
Excess demand for
money. People sell
bonds and the
interest rate rises
MD
10
11
12
Quantity of money (trillions of dollars)

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