Q5 Monetary policy is the actions of the central bank to manage the money supply and interest rates to achieve its macroeconomic policy goals. (a) Figure Q5(a) shows the graph of the money market where MS represents the supply of money curve and MD represents the demand for money curve. M82 MSI MD2 MD1 Interest Rate (i) Quantity of Money (M) Figure Q5(a): Money market equilibrium (i) Describe the situation where the Central Bank reduces money supply and shifts money supply curve from MSI to MS2. Explain the effect to interest rate when the demand for money increase in the market and money demand curve shifts from MDI to MD2. Assume the money supply curve remains at MS 1. (b) Explain TWO (2) effects of contractionary fiscal policy on the demand-side of the economy.

Q5 Monetary policy is the actions of the central bank to manage the money supply and interest rates to achieve its macroeconomic policy goals. (a) Figure Q5(a) shows the graph of the money market where MS represents the supply of money curve and MD represents the demand for money curve. M82 MSI MD2 MD1 Interest Rate (i) Quantity of Money (M) Figure Q5(a): Money market equilibrium (i) Describe the situation where the Central Bank reduces money supply and shifts money supply curve from MSI to MS2. Explain the effect to interest rate when the demand for money increase in the market and money demand curve shifts from MDI to MD2. Assume the money supply curve remains at MS 1. (b) Explain TWO (2) effects of contractionary fiscal policy on the demand-side of the economy.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 6PA

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Canvas Question 3 Determine the equilibrium income and interest rate given the following information about the commodity market: C = 0.8Y + 100 |= -20r + 1000 and the money market: MS = 2375 L, = 0.1Y L2 =-25r + 2000 What effect would a decrease in the money supply have on the equilibrium levels of Y and r? Edit Format Table 12pt v Paragraph BIU DELL prt s 9, o a decrease in the money suin
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