PRICE LEVEL 30 INTEREST RATE (Percent) Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Money Supply I MONEY (Billions of dollars) Money Demand Money Demand -- Money Supply Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of The following graph plots the aggregate demand curve for this economy. than the quantity of money their money holdings. In order to do so, they will interest rates until equilibrium is Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. 180 150 120 Aggregate Demand 20 40 80 100 120 OUTPUT (Billions of dollars) Aggregate Demand The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. in residential and business spending, which will cause
PRICE LEVEL 30 INTEREST RATE (Percent) Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Money Supply I MONEY (Billions of dollars) Money Demand Money Demand -- Money Supply Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of The following graph plots the aggregate demand curve for this economy. than the quantity of money their money holdings. In order to do so, they will interest rates until equilibrium is Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. 180 150 120 Aggregate Demand 20 40 80 100 120 OUTPUT (Billions of dollars) Aggregate Demand The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. in residential and business spending, which will cause
Chapter1: Making Economics Decisions
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Transcribed Image Text:PRICE LEVEL
30
INTEREST RATE (Percent)
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves.
Assume the central bank in this economy (the Fed) fixes the quantity of money supplied.
Suppose the price level decreases from 90 to 75.
Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.
Money Supply
I
MONEY (Billions of dollars)
Money Demand
Money Demand
--
Money Supply
Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be
supplied by the Fed at this interest rate. As a result, individuals will attempt to
bonds and other interest-bearing assets, and bond issuers will realize that they
restored in the money market at an interest rate of
The following graph plots the aggregate demand curve for this economy.
than the quantity of money
their money holdings. In order to do so, they will
interest rates until equilibrium is
Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve.
180
150
120
Aggregate Demand
20
40
80
100
120
OUTPUT (Billions of dollars)
Aggregate Demand
The change in the interest rate found in the previous task will lead to a
in the quantity of output demanded in the economy.
in residential and business spending, which will cause
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