The money market in the United States and the investment demand curve are as shown in the graphs below. Currently, the Federal Reserve has a money supply of $40 billion and the money market is in equilibrium.   a. Suppose the Federal Reserve increases the money supply by $20 billion. Use the money market and investment demand graphs to show the effects of the increase in the money supply on interest rates, money demand, and investment.   Instructions: In the money market graph, use the tool provided 'MS,1' to draw a new money supply curve. Plot only the endpoints of the line (2 points total). Use the tool provided 'New Equilibrium' to plot a new equilibrium interest rate

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The money market in the United States and the investment demand curve are as shown in the graphs below. Currently, the Federal Reserve has a money supply of $40 billion and the money market is in equilibrium.

 

a. Suppose the Federal Reserve increases the money supply by $20 billion. Use the money market and investment demand graphs to show the effects of the increase in the money supply on interest rates, money demand, and investment.

 

Instructions: In the money market graph, use the tool provided 'MS,1' to draw a new money supply curve. Plot only the endpoints of the line (2 points total). Use the tool provided 'New Equilibrium' to plot a new equilibrium interest rate. 

Instructions: In the investment demand graph, use the tool provided 'lInvestment' to plot a new level of investment demand.
Investment Demand
16
Tools
14
Investment
12
10
8.
4
2
10 15 20 25 30 35 40 45 50
Quantity of Investment (billions of dollars)
Interest Rate (percent)
Transcribed Image Text:Instructions: In the investment demand graph, use the tool provided 'lInvestment' to plot a new level of investment demand. Investment Demand 16 Tools 14 Investment 12 10 8. 4 2 10 15 20 25 30 35 40 45 50 Quantity of Investment (billions of dollars) Interest Rate (percent)
Your Graph Score: 67%
Money Market
16
Ms
14
Ms,1
New Equilibriu
12
10
8.
4
MD
10
40
50
60
70
80 90
Money (billions of dollars)
30
20
Interest Rate (percent)
Transcribed Image Text:Your Graph Score: 67% Money Market 16 Ms 14 Ms,1 New Equilibriu 12 10 8. 4 MD 10 40 50 60 70 80 90 Money (billions of dollars) 30 20 Interest Rate (percent)
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