The graph illustrates the relationship between the rate of interest and the quantity of money in a money market. The x-axis represents the "Quantity of Money," while the y-axis represents the "Rate of Interest."Key points on the graph:- $ S_{m1}, S_{m2}, S_{m3} $ are variations of the supply of money.- $ D_t $ is the transactions demand for money, located at 125 on the x-axis.- $ D_m $ is the total demand for money, located at 325 on the x-axis.The line slopes downward from a high rate of interest when the quantity of money supplied is low, to a lower rate of interest when the quantity of money supplied is high. Below the graph is a question:**Question:**Refer to the above graph, in which $ D_t $ is the transactions demand for money, $ D_m $ is the total demand for money, and $ S_m $ is the supply of money. The transactions demand for money in this money market is:- ○ $250.- ○ $125.- ○ $175.- ○ $325.

Answer to the question is as follows :Definition for transaction demand for money : It is the amount of money that is demanded for day to day transactions . For example , the producer demands money to pay wages to the labor and also to purchase raw materials for production purposes Similarly ,consumers demand money to buy goods and services as required. The transaction demand for money depends on income (Y) and so higher the income, greater is the transaction demand for money( Dt). But it is independent of the rate of interest ( r) . In the figure , when the quantity of money plotted against the rate of interest , the transaction demand for money (Dt) is a straight line parallel to the axis measuring the interest rate . That means, irrespective of high or low interest rate, the transaction demand for money is constant at $125( as seen from the figure given) . Hence ,the second option is the correct one.

Business

Economics

Refer to the above graph, in which D; is the transactions demand for money, Dm is the total demand for money, and S,m is the supply of money. The transactions demand for money in this money market is: $250. $125. O $175. $325.

Refer to the above graph, in which D; is the transactions demand for money, Dm is the total demand for money, and S,m is the supply of money. The transactions demand for money in this money market is: $250. $125. O $175. $325.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Outline the main determinants of the demand for money.
Suppose that the supply of credit cards is given by (1/200) X = q, the nominal interest rate is 0.06, real GDP is Y = 52, and the price level is P = 105. What must be the quantity of money supplied for this money market to be in equilibrium. Round your answer to the nearest whole number.
Link each of the below concepts in the table with its explanation |1- Demand deposits a. is an example of “Commodity Money" b. The institution that oversees the banking system and regulates the money supply is the- 2- Money Supply c. is the quantity of money available in the economy. It can be measured by using Monetary Aggregates. 3- Central bank d. are balances in bank accounts that depositors can access on demand by writing a check. 4- Gold
When the Federal Reserve buys T-Bonds in the US market. a. Money supply increases b. Money supply decreases c. Irrelevant to Money Supply
Rate of interest (%) 16 14 12 10 00 6. 4 2 0 40 80 B 120 160 200 Quantity of investment 144 240 280
This question asks how the money market graph is affected by a specific event. Note that the money market graph is the graph with the money supply and money demand curves If regulation is passed that makes it more difficult for consumers to withdraw money from existing savings accounts. then how is the money market graph affected? a. increase in equilibrium interest rates, and increase in the equilibrium quantity of money O b. decrease in equilibrium interest rates, and decrease in the equilibrium quantity of money O c. decrease in equilibrium interest rates, and increase in the equilibrium quantity of money Od increase in equilibrium interest rates, and decrease in the equilibrium quantity of money O e no change in equilibrium interest rates, and no change in the equilibrium quantity of money
If the money supply is $60 and nominal GDP is $360, then Group of answer choices A) the velocity of money must be 300. B) the velocity of money must be 4.2. C) the velocity of money must be 3. D) the velocity of money must be 60. E) the velocity of money must be 6.
Q47 Which of the following is the definition for the real supply of money? Select one: a. the actual quantity of money, rather than the officially reported quantity. b. the stock of high powered money only. c. the ratio of the real GDP to the nominal money supply. d. the stock of money measured in terms of goods, not dollars.
Draw diagrams illustrating the impact on the demand for money, the supply of money and the equilibrium interest rate, of each of the following. Explain what is going on in the money market in each case. (a) The central bank sells securities on the open market. (b) The economy grows (GDP increases) but the central bank moves to keep interest rates constant.
If you are unable to see the graph below: Vertical MS croxses downward sloping Money Demand at 3% Interest Rate MS 4% b. 3% 2% Money Demand Quantity of Money There is an excess supply of money at an interest rate of 4% an interest rate of 2% O None of the above are correct. an interest rate of 3%
Please show equation: If the required reserve ratio (RRR) in the U.S. is 40 percent and Allen gathers $10,000 from cash sales and deposit the money into his U.S. National Bank checking account, then the change in the U.S. money supply should be Answers: A. No change B. A $4,000 increase C. A $15,000 increase D. A $25,000 increase
For the quantity theory of money (Mv=PY), if v and Y were fixed, what would an increase in M do to P?