Refer to Figure 14-1. In the figure above, the money demand curve would move from Money demand1 toMoney demand2 ifFigure 14-1Interestrate, iMoneydemand,real GDP decreased.the price level increased.the interest rate increased.the Federal Reserve sold Treasury securities.None of the above.MoneydemandQuantity of money, M(billions of dollars)

The link between the amount of money demanded and the interest rate in the economy is represented by…

Answered: Refer to Figure 14-1. In the figure…

Refer to Figure 14-1. In the figure above, the money demand curve would move from Money demand1 to Money demand2 if Figure 14-1 Interest rate, I Money demand, Money demand

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

Refer to Figure 14-1. In the figure above, the money demand curve would move from Money demand1 to
Money demand2 if
Figure 14-1
Interest
rate, i
Money
demand,
real GDP decreased.
the price level increased.
the interest rate increased.
the Federal Reserve sold Treasury securities.
None of the above.
Money
demand
Quantity of money, M
(billions of dollars)

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5. Changes in the money supply The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. INTEREST RATE (Percent) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 0 Money Demand + 0.1 Money Supply 0.2 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 New MS Curve New Equilibrium ?
Suppose that money demand is given by the function MD=55+P, and the Bank of Canada maintains the supply of money at MS=$58b. If the Bank of Canada suddenly increases the money supply to MS'-$60b, what has happened to equilibrium value of money? a)It has decreased from 5 to 2 b)MD will shift, and the value of money will remain unchanged c)It has increased from 3 to 5 d) It has decreased from 1/3 to 1/5
6. Targeting the money supply or interest rates The following graph shows an increase in the demand for money from 2020 (MD2020 to 2021 ( MD202) caused by an increase in aggregate output. The initial equilibrium interest rate in 2020 was Suppose the Federal Reserve (the Fed) chooses not to alter the money supply between 2020 and 2021. On the following graph, use the grey point (star symbol) to indicate the equilibrium interest rate and quantity of money that would result from this lack of intervention. NOMINAL INTEREST RATE (Percent) 6.50 Money Supply 6.25 6.00 5.75 5.50 5.25 5.00 4.75 4.50 0.9 1.0 1.1 1.2 1.3 14 1.5 QUANTITY OF MONEY (Trillions of dollars) MD 2021 MD 2020 No Intervention New MS Curve + With Intervention Suppose the Fed wants to keep 2021 interest rates at their 2020 level. On the previous graph, place the green line (triangle symbols) to indicate the new money supply curve if the Fed follows this policy. Then use the black point (plus symbol) to indicate the…
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 12 10 8 2 0 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 = Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase…
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TOPIC: Equilibrium in the money market NOTE: Everything you need will be in the picture. Thank you
Change in the money supply
Am.101.
The following diagram shows the Money Market for a hypothetical economy. Suppose that the economy begins with a Money Supply (Ms) of $300 million, and an equilibrium interest rate of 5.0%. Finally suppose that the required reserve ratio (rr) is 15%. Use the scenario to answer Questions 10 to 13. Interest rates (i) 5.5% 5% 4.5% Ms O increase the money supply $10 million O increase the money supply $100 million O decrease the money supply $300 million O decrease the money supply $200 million O decrease the money supply $100 million $200 $300 $350 Mp Quantity of Money (millions) Suppose that the Central Bank wished to raise the equilibrium interest rate up to 5.5%. In order to achieve this, it would need I to
3. Changes in the money supply 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 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 4.5 4.0 6 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 Money Demand + 0.1 Money Supply 0.3 0.5 0.6 MONEY (Trillions of dollars) 0.2 0.7 0.8 New MS Curve New Equilibrium ? Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing…