Question 6. Suppose that money supply and money demand determine the price level (P) in an economy. As shown in the equation below, in equilibrium, money demand equals to money supply. Equilibrium м L(r +Ex,Y) P The supply of real money balances Real money demand where M is the quantity of money, P is the price level, r is the real interest rate, En is the expected inflation, and Y is the national income. a. Does the real money demand positively or negatively depend on nominal interest rate, į =r+Ex? Does the real money demand positively or negatively depend on national income, Y? Why? Briefly explain your answer. b. For given values of r, Y and M, explain how nominal interest rate (i), real money demand and price level (P) respond to an increase in ET. Briefly explain your

Question 6. Suppose that money supply and money demand determine the price level (P) in an economy. As shown in the equation below, in equilibrium, money demand equals to money supply. Equilibrium м L(r +Ex,Y) P The supply of real money balances Real money demand where M is the quantity of money, P is the price level, r is the real interest rate, En is the expected inflation, and Y is the national income. a. Does the real money demand positively or negatively depend on nominal interest rate, į =r+Ex? Does the real money demand positively or negatively depend on national income, Y? Why? Briefly explain your answer. b. For given values of r, Y and M, explain how nominal interest rate (i), real money demand and price level (P) respond to an increase in ET. Briefly explain your

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 7. Using the models learned in class, graphically illustrate and explain the impact of the following policy and explain your answer. Suppose the Bank of Canada reduces the money supply by 5%. a. What happens to the aggregate demand curves? b. What happens to the level of output and the price level in the short run and in the long run? c. What happens to the real interested rate in the short run and in the long run?
Present an analysis where you examine the long term impact of an increase in the money supply. Use your analysis to explain why increases in the money supply may explain the observed changes in both product prices and nominal wage levels over time. Also, uses your analysis to explain (using words) what it means when macroeconomists say “money is neutral.”
According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to A) decreases in both the price level and real GDP. B) an increase in real GDP and an increase in the price level. C) a decrease in the price level but does not change real GDP. D) an increase in the price level but does not change real GDP.
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Assume the money supply is $1,000, the velocity of money is 12, and the price level is $4. Using the quantity theory of money: (a) Determine the level of real output. (b) Determine the level of nominal output. (c) Assuming velocity remains constant and that the economy is at full-employment equilibrium, what will happen if the money supply rises by 10%?
What is the expected impact of a decline in the money supply to the US economy? A. Higher aggregate prices (inflation) B. Lower aggregate prices (deflation) C. There is no general relationship between the money supply and inflaton
If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it, ________. A) it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate B) it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate C) it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand D) it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand E) none of the above
The commodity market for a simple two-sector economy is in equilibrium when Y = C + I. The money market is in equilibrium when the supply of money (Ms) equals the demand for money (Md), which in turn is composed of the transaction-precautionary demand for money (Mt) and the speculative demand for money (Mz). Assume a two-sector economy where C = 5 + 0.8Y, I = 100 - 75i, Ms = 250, Mt= 0.3Y, and Mz = 50 - 150i. , find the IS and LM and equliprium in commodity and money markets. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the a) right, lowering the price level. b) left, raising the price level. c) right, raising the price level. d) lefi, lowering the price level.
Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to decrease the money supply, then: the economy will move to a lower price level but remain at potential GDP. the economy will permanently move to a higher level of output and a higher price level. the economy will permanently move to a lower level of output and a lower price level. the economy will move to a higher GDP level but remain at a constant price level.
Which of the following will most likely cause a decrease in the quantity of money demanded? Group of answer choices an increase in the interest rate an increase in the price level an increase in nominal aggregate output a decrease in the interest rate
16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deﬁcient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?