The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. INTEREST RATE (Percent) 12 10 8 0 0 20 Money Supply Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply (?

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The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes
the quantity of money supplied.
Suppose the price level increases from 90 to 105.
Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.
12
Money Supply
10
1
Money Demand
2
0
0
20
40
60
80
MONEY (Billions of dollars)
INTEREST RATE (Percent)
100
120
Money Demand
Money Supply
?
Transcribed Image Text:The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. 12 Money Supply 10 1 Money Demand 2 0 0 20 40 60 80 MONEY (Billions of dollars) INTEREST RATE (Percent) 100 120 Money Demand Money Supply ?
After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will be
supplied by the Fed at this interest rate. People will try to
interest-bearing assets, and bond issuers will find that they
equilibrium at an interest rate of
%
The following graph shows the economy's aggregate demand curve.
Show the impact of the increase in the price level by moving the point along the curve or shifting the curve.
PRICE LEVEL
180
150
120
90
60
30
0
0
40
Aggregate Demand
80
120
160
OUTPUT (Billions of dollars)
than the quantity of money
▼ their money holdings. In order to do so, people will bonds and other
interest rates until the money market reaches its new
200
240
Aggregate Demand
?
The change in the interest rate that you found previously will cause residential and business investment spending to
in the quantity of output demanded in the economy.
1
leading to
Transcribed Image Text:After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. People will try to interest-bearing assets, and bond issuers will find that they equilibrium at an interest rate of % The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. PRICE LEVEL 180 150 120 90 60 30 0 0 40 Aggregate Demand 80 120 160 OUTPUT (Billions of dollars) than the quantity of money ▼ their money holdings. In order to do so, people will bonds and other interest rates until the money market reaches its new 200 240 Aggregate Demand ? The change in the interest rate that you found previously will cause residential and business investment spending to in the quantity of output demanded in the economy. 1 leading to
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