Reference: Ref 15-5 (Figure: The Money Supply and Aggregate Demand) Refer to the figure The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would______ government bonds,_______ the money supply, and interest rates. This is shown in panel Price level P₂ P₁ Y₁ Panel (a) AD₁ Y₂ O buy; increase; lower; (a) sell; increase; lower; (b) buy; decrease; lower; (a) O buy; increase; raise; (a) SRAS AD₂ Real GDP (per year) Panel (b) Price level P₁ * P₂ SRAS AD₂ Y₂Y₁ Real GDP (per year) AD₁

Reference: Ref 15-5 (Figure: The Money Supply and Aggregate Demand) Refer to the figure The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would government bonds,_ the money supply, and interest rates. This is shown in panel Price level P₂ P₁ Y₁ Panel (a) AD₁ Y₂ O buy; increase; lower; (a) sell; increase; lower; (b) buy; decrease; lower; (a) O buy; increase; raise; (a) SRAS AD₂ Real GDP (per year) Panel (b) Price level P₁ * P₂ SRAS AD₂ Y₂Y₁ Real GDP (per year) AD₁

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 3 In the table below, indicate the short-run effects of an open market purchase of Treasury Bills by the Federal Reserve on the money supply, the interest rate, short-run equilibrium GDP and the position of the Money Demand, Aggregate Demand, and Short-Run Aggregate Supply curves. You will be placing an “x" in the appropriate column in each of the rows numbered 1 through 6. (Note: each numbered row should have 1 and only 1 column marked with an “x".)_ Increase Decrease Stay the same 1 Money supply 2. Interest rate 3. Short-run equilibrium real GDP Shift Right Shift Left Stay the same Money Demand curve Aggregate Demand curve Short-Run Aggregate Supply curve 4. 5. 6.
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Discuss the impact of monetary and fiscal policy in each of these special cases:4. 1.1. If investment does not depend on the interest rate, the IS curve is vertical.4.1.2. If money demand does not depend on the interest rate, the LM curve is vertical.
QUESTION 4 Consider the model of money demand we saw in class. Let the elasticity of money demand with respect to real income be 0.8 and the elasticity of money demand with respect to the interest rate on non-monetary assets be -0.2. Imagine that real income goes up by 3%, the interest rate on non-monetary assets goes up by 1%, and the price level does not change. Then the nominal demand for money changes by percent. Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".
0 The Fed exerted downward pressure on interest rates by conducting open market sales which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. The Fed exerted upward pressure on interest rates by conducting open market sales which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. The Fed exerted downward pressure on interest rates by conducting open market purchases which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital, The Fed exerted upward pressure on interest rates by conducting open market purchases which led to an increase in demand for interest sensitive goods such as consumer durables, housing, and investment in physical capital. Question 24 3 Which of the following is the most plausible explanation for the shift in the aggregate demand curve…
5:09 C A & 1 & P M - 32% Page 8 of 5 QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long-Run AS Short-Run AS AD Real GDP At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a. What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and…
) In our model of the economy, we used the money market, investment demand (curve) & AS/AD diagrams to illustrate an example of the conducting of monetary policy. Briefly describe the conducting of the type of monetary policy the Fed would conduct based on your above answer: In the money market, the Fed would the money supply; this will interest rates which will the quantity of investment demanded. This would cause the _____ curve to which would equilibrium output prices & real GDP.
013. [True or False] If money demand becomes more INSENSITIVE to interest rate, the AD curve becomes flatter. Is the statement true or false?
6. Keynesian demand-side versus supply-side effects Consider an economy operating below its full-employment output level. The government wants to enact a reduction in income taxes in an effort to restore the economy to full-employment output. On the graph that follows, shift one of the curves to illustrate the impact of the income tax cut on aggregate supply (AS) and aggregate demand (AD) that is emphasized by Keynesian economists. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL REAL GDP (Billions of dollars) SRAS AD AD SRAS
2. (a) Given the following data about the monetary sector of the economy: Md = 0.4Y - 80r Ms 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and Ms is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve.
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will always lower long-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.