4. Changes in the money supply Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate willthe cost of borrowing, causing residential and business investment spending toand the quantity of output demanded toat each price level.Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand.PRICE LEVELOUTPUTAggregate DemandOAggregate Demand 4. Changes in the money supplyThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it hasa central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other worldeconomies). 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 thegraph by the grey star symbol.INTEREST RATE (Percent)4.54.03.53.02.5201.51.00.5Money Demand00.10.2Money Supply0.40.50.3MONEY (Trillions of dollars)0.60.70.8=New MS CurveNew EquilibriumSuppose 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 tothemoney bythe 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 thecorrect location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money.

Central bank of a nation controls the money supply in the economy. A change in money supply changes…

Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate will and the quantity of output demanded to the cost of borrowing, causing residential and business investment spending to at each price level. Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand.

Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate will and the quantity of output demanded to the cost of borrowing, causing residential and business investment spending to at each price level. Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. The reserve requirement, open market operations, and the moneysupply Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $300. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) (Dollars) 5 10 A higher reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess reserves, banks begin…
5. Assume that the required reserve ratio is 20%. If the Fed sells $10 million worth of government bonds from the public, the maximum change in the money supply is: a) -$50 million. (b) -$20 million. (c) $20 million. (d) $50 million.
43)Silver used as money was called _______ and ______ Select one: a. Commodity money; A discovery of silver would lead to deflation b. Fiat Money; A discovery of silver would lead to inflation c. Fiat Money; A discovery of silver would lead to deflation d. Commodity money; A discovery of silver would lead to inflation
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Macmillan Learning Suppose you win on a scratch-off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 10%. What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: S 24750 Incorrect Which events could cause the increase in the money supply to be less than its potential? All money loaned out is deposited back into the banking system. Banks decide to keep some excess reserves on hand. Banks choose to loan out all excess reserves. Some loan recipients choose to hold some cash instead of depositing all of it in banks.
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20. Assuming that prices of various consumer goods increase in the country. This event will _____________ and cause the interest rates in the money market to ___________. A. increase the supply of money; fall B.decrease the supply of money; rise C. increase the demand for money; fall D. increase the demand for money; rise
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19. If the Fed reduces the money supply to reduce inflation: a) the interest rate will increase, and the price of US exports will fall and the price of US imports will rise. b) the interest rate will increase, and the price of US exports will rise and the price of US imports will fall. c) the interest rate will increase, and the price of both US exports and US imports will rise. d) the interest rate will increase, and the price of both US exports and US imports will fall.