The diagrams below illustrate two alternative approaches to implementing monetary policy. The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to Mº Interest Rate 3% 2% MI MO MD (P.Y) Quantity of Money part (1)-targeting the interest rate Interest Rate 2% FIGURE 28-1 MI MO MDP.Y) Quantity of Money part (-targeting the money supply Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting_ in quantity of money demanded by in financial markets. Oa) decrease; selling government securities Ob) decrease; buying government securities Oc) increase; selling government securities d) increase; buying government securities

The diagrams below illustrate two alternative approaches to implementing monetary policy. The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to Mº Interest Rate 3% 2% MI MO MD (P.Y) Quantity of Money part (1)-targeting the interest rate Interest Rate 2% FIGURE 28-1 MI MO MDP.Y) Quantity of Money part (-targeting the money supply Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting_ in quantity of money demanded by in financial markets. Oa) decrease; selling government securities Ob) decrease; buying government securities Oc) increase; selling government securities d) increase; buying government securities

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 ?
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Rate of interest (%) 16 14 12 10 00 6. 4 2 0 40 80 B 120 160 200 Quantity of investment 144 240 280
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