Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by the . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of interest-bearing financial assets (such as bonds) demanded which means that bond issuers interest rate is achieved. sell bonds. This process continues until the new equilibrium

Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by the . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of interest-bearing financial assets (such as bonds) demanded which means that bond issuers interest rate is achieved. sell bonds. This process continues until the new equilibrium

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 150 to 125. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. ? INTEREST RATE (Percent) 12 10 2 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply
The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has established a 5% target for the federal funds rate. a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to increase. Show this change in the demand for reserves in the federal funds market. Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total). Federal Funds Market Federal Funds Rate (percent) 10 20 30 40 50 60 70 80 90 100 Tools DH1 0 F 4 b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of reserves will increase to meet the change in reserve demand.
Assume that the following data characterize a hypothetical economy: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate.a. What is the equilibrium interest rate? Explain.b. At the equilibrium interest rate, what are the quantity of money supplied, the total quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset?
Suppose that money demand is given by M = $Y(0.30-i) where $Y is $200 and i denotes the interest rate in decimal form. Also, suppose that the supply of money is $25. Calculate the equilibrium interest rate as a percent. The equilibrium interest rate is %. (Round your response to two decimal places.) If the Federal Reserve wants to increase the interest rate by 10 percentage points (0.1 in decimal form) over and above the equilibrium interest rate determined above, at what level should it set the money supply? The money supply should be set at $ (Round your response to one decimal place.)
Suppose the Fed announces that it is raising its target interest rate by 25 basis points, or 0.25 percentage point. 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 the new money supply curve (MS) in the correct location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money. Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a higher interest rate will the cost of borrowing, causing residential and business investment spending to and the quantity of output demanded to at each price level. 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.
6. 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 3.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.5 5.0 New MS Curve Money Demand 4.5 4.0 3.5 3.0 2.5 2.0 1.5 0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (?) Suppose the Fed announces that it is raising its target interest rate by 50 basis points, or 0.5 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…
Answer to 2 decimal digits
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 ?
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 8.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion. money Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
Scenario 2 Suppose the money demand is given by MdYx (0.4 - i) = where i is the interest rate. Suppose income Y totals 250. 9. Refer to Scenario 2. If the money supply is M³ = 25, what is the equilibrium interest rate? 10. Refer to Scenario 2. Suppose the Federal Reserve just met and decided they would like to decrease the interest rate by 4 percentage points (compared to the equilibrium rate you found in the previous question). What kind of monetary policy should it use, and what would the money supply have to equal to achieve that goal? (Your answer should be two items: first is expansion or contraction, the second is the actual amount the money supply should be.)
Suppose the Federal Reserve (the US central bank) increases the money stock. Create a graph that explains the effect of the Fed's expansionary monetary policy in the Long Run.
suppose the federal reserve needs to bring inflation under control and decides to raise the interest rate by 1 point. Use the graph below to decide on the appropriare course of action if the reserve requirement is 0% but banks like to hold 10% of deposits as reserves and the public likes to hold 3% of their money as cash