Q1. Suppose that money demand is given by the following function MD=$Y (0.5 - i)and that nominal GDP is given by $200. Moreover, assume that the monetary baseis given by H³ = $8. It is also known that people in this economy hold all theirwealth either in form of checkable deposits or in form of bonds (i.e. people holdno currency) and that banks must hold 10% of the checkable deposits as reserves.(a) Calculate the money market equilibrium using that the supply and the demandfor central bank money is equal.(b) Calculate the overall supply of money.(c) What happens to the money market equilibrium if the central bank decides toincrease the monetary base to Hs = $9?(d) What are the effects on the overall money supply in the economy? (Calculatethe new overall supply of money and explain your result.)

(a): Money Market Equilibrium.In part (a), we are tasked with finding the money market equilibrium…

Answered: Q1. Suppose that money demand is given…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Suppose consumers lose their faith in the banking system, and decide to start stuffing their money under their mattress rather than saving it in a bank or buying bonds. This will cause interest rates to _____ and the amount borrowed to _____ increase or decrease?
am. 184.
In the country of Winterfell, the velocity of money is constant. GDP growth is 4% per year, the money stock grows at 14% per year, and the nominal interest rate is 11%. What is the real interest rate? (If your answer is 0.012, please write 1.20, do not include %)
7
Suppose that wealth is $5trn and can be in money and bonds only. Suppose that yearly income is $1.5trn. Also, suppose that money demand function is given by Md = $Y (.8 - 2i) a. What is the demand for money and the demand for bonds when the interest rate is 2% (i=0.02)? 4% (i=0.04)?
Suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves in response to uncertain economic conditions. Specifically, banks increase the percentage of deposits held as reserves from 10% to 20%. This increase in the reserve ratio causes the multiplier to fall from 10 to 5. Under these conditions, How Many Dollars Worth of government bonds would the Fed would need to Buy or Sell in order to increase the money supply by $100?
Suppose that the demand for money function was MD = 4Y − 1000i where MD is the quantity of money demanded, i is the rate of intest (an interest of 5 means 5 percent in this problem), and Y is real national income, which currently is 1500. The supply of money is 1000, currency in circulation outside the banking system is 100, the target reserve ratio is 10 percent, there is no cash drain in the banking system, and the recessionary gap is 250. The price level does not change in this problem. What is the level of cash reserve of the banking system?
answer only question 10 pls
Give typing answer with explanation and conclusion A standard "money demand" function used by macroeconomists has the form ln(m)=β0+β1ln(GDP)+β2R, Where m is the quantity of (real) money, GDP is the value of (real) gross domesticproduct, and R is the value of the nominal interest rate measured in percent per year. Supposed that β1 = 2.66 and β2 = −0.05. A) What is the expected change in m if GDP increases by 4%? The value of m is expected to_________(increase or decrease ) by approximately ________% (Round your response to the nearest integer) B) What is projected to change in m if the interest rate increases form 2% to 6% ? The value of m is expected to ________(increase/decrease) by approximately ________% (Round your response to the nearest integer)
Q3. Suppose that the money demand function is given by: Md=$Y (.25-i), where $Y is $100. (a) Derive the bond demand function (B) assuming that wealth is $50. (b) Calculate Md and Bd at interest rates of 5% (use .05) and 10% (use .10). SHOW WORK. (c) How does an increase in the interest rate affect the amount of money people are willing to hold, according to your calculations? How does an increase in the interest rate affect the quantity of bonds people are willing to hold? (d) Suppose the supply of money is currently $20.. Show that the equilibrium interest rate is 5% (.05). (e) Suppose the central bank wants the equilibrium interest rate to rise to 15% (.15). At what level should it set monetary policy? SHOW WORK. What kind of monetary policy (expansionary or contractionary) does this imply?
Question 1 government purchases are 2000. Desired consumption and desired investment are as follows: An economy has full-employment real output of 9000, and Real Interest Rate (%) Desired Consumption Desired Investment 1 6100 1500 1.5 6000 1400 2 5900 1300 2.5 5800 1200 1100 3 5700 In this economy, suppose that the real money demand function is 0.01Y L(Y, r + t®) = r+ne> where Y is real output, r is the real interest rate, and T is the expected rate of inflation. Real output is constant at the full-employment level over time. The real interest rate is fixed in good markets equilibrium per year. a. Interpret the income elasticity of money demand and the interest elasticity of money demand, as well as the real money demand function. b. Suppose that the nominal supply is growing at the rate of 25% per year and this growth rate is expected to persist forever. Currently, the nominal money supply is M-1500. What are the values of the real money supply, the nominal interest rate and the…
The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = PxQ. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (Mx V) = = You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = = Percentage Change in (PxQ) %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate of 5% per year, you can use this…

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