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PRICE LEVEL INTEREST RATE (Percent) The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 5.0 4.5 New MS Curve Money Demand 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (? Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to increase the supply of money by buying bonds from 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 location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. and the quantity of output Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to at each price level. demanded to Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. OUTPUT Aggregate Demand Aggregate Demand

PRICE LEVEL INTEREST RATE (Percent) The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 5.0 4.5 New MS Curve Money Demand 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (? Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to increase the supply of money by buying bonds from 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 location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. and the quantity of output Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to at each price level. demanded to Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. OUTPUT Aggregate Demand Aggregate Demand

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Change in the money supply

PRICE LEVEL INTEREST RATE (Percent) The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 5.0 4.5 New MS Curve Money Demand 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (? Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to increase the supply of money by buying bonds from 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 location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. and the quantity of output Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to at each price level. demanded to Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. OUTPUT Aggregate Demand Aggregate Demand
Transcribed Image Text:PRICE LEVEL INTEREST RATE (Percent) The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 5.0 4.5 New MS Curve Money Demand 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (? Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to increase the supply of money by buying bonds from 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 location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. and the quantity of output Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to at each price level. demanded to Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand. OUTPUT Aggregate Demand Aggregate Demand
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