The graph on the right depicts real money supply. 1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram to the right. Label this line 'L(R,Y)¹. Now suppose that consumers' preferences change in such a way that they choose to carry more cash. 2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand for money curve as a result of this change. Label this line 'L(R,Y)²¹. Carefully follow the instructions above and only draw the required objects. As a result of this change in preferences, equilibrium in the money market will be interest rate. Real money holdings will at a remain unchanged rise Interest rate, R MS Real money holdings

The graph on the right depicts real money supply. 1.) Using the three-point curve drawing tool, draw the aggregate money demand curve in the diagram to the right. Label this line 'L(R,Y)¹. Now suppose that consumers' preferences change in such a way that they choose to carry more cash. 2.) On the same graph, using the three-point curve drawing tool, draw the new aggregate demand for money curve as a result of this change. Label this line 'L(R,Y)²¹. Carefully follow the instructions above and only draw the required objects. As a result of this change in preferences, equilibrium in the money market will be interest rate. Real money holdings will at a remain unchanged rise Interest rate, R MS Real money holdings

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = PxQ. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (Mx V) = = You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = = Percentage Change in (PxQ) %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate of 5% per year, you can use this…
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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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The desired reserve ratio is 1 percent of deposits, and the currency drain ratio is 2 percent of deposits. The central bank makes an open market purchase of $4 million of securities. Calculate the change in the quantity of money. How much of the new money is currency and how much is bank deposits? >>> Answer to 2 decimal places. ..... The quantity of money changes by 5 million.
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