Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) $50 60 7% $100 6 110 70 5 120 80 4 130 90 3 140 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to A) buy, $2 billion B) sell, $4 billion OC) sell, $2 billion Interest Rate D) buy, $4 billion Investment (billions of dollars)

Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) $50 60 7% $100 6 110 70 5 120 80 4 130 90 3 140 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to A) buy, $2 billion B) sell, $4 billion OC) sell, $2 billion Interest Rate D) buy, $4 billion Investment (billions of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The graph shows the demand for money curve and the supply of money curve. The Fed decreases the quantity of real money supplied to $3.9 trillion. Draw a new MS curve that shows the effect of the Fed's action. Label it. Draw a point at the new equilibrium quantity of money and interest rate. Before the Fed decreases the quantity of money, the equilibrium interest rate is percent a year. After the Fed decreases the quantity of money, at an interest rate of 4 percent a year, people want to hold money than the quantity supplied, so they bonds. A. more; sell B. less; buy C. less; sell D. more; buy The price of a bond A. falls; falls O B. rises; falls and the interest rate 8- 7- 6- 5- 4- 3- 2- 1- Nominal interest rate (percent per year) 4 0+ 3.8 MS 4.0 MD 4.0 4.1 3.9 Quantity of money (trillions of 2009 dollars) >>> Draw only the objects specified in the questi 4.2
SHOW NEW GRAPH Options listed If the velocity of money is 3, the money supply in this economy is - $12 trillion, $9 trillion, $15 trillion, $6 trillion, $18 trillion, OR $3 trillion Because ( the AD curve is downward sloping, velocity is assumed to be constant, OR the federal reserve controls M), the percentage increase in the price level is (less than, greater than, OR the same as) the percentage increase in the money supply. This illustrates (fact that monetary policy can increase real gdp, simple quantity theory of money, OR the importance of the federal reserve.)
1. If LRAS = $500 billion, RGDP = $700 billion, and MPC = .8, then what should the Fed do? Be specific and list all three options. Also draw and label both the current situation and what would occur as the government impacted the economy through their actions. 2. What are the impacts in the short run of the above actions on the following: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium RGDP.
Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to decrease the money supply, then: the economy will move to a lower price level but remain at potential GDP. the economy will permanently move to a higher level of output and a higher price level. the economy will permanently move to a lower level of output and a lower price level. the economy will move to a higher GDP level but remain at a constant price level.
Use the following table to answer the next question. The money supply and investment are in billions. Money Supply (billions of dollars) Investment (billions of dollars) Interest Rate $50 60 70 80 90 7% $100 110 120 130 140 5 4 3 Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by $100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the Federal Reserve should bonds on the open market equal to O A) buy, $2 billion B) buy, $4 billion C) sell, $2 billion D) sell, $4 billion
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 150 to 175. 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) 18 15 12 60 3 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply (?) After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. People will try to other interest-bearing assets, and bond issuers will find that they equilibrium at an interest rate of % than the quantity of money bonds and interest rates until the money market reaches its new their money holdings. In order to do so, people will
Thank you
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 ?
If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level. sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level. buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.
From any point below the current LM curve, money market equilibrium can be restored by some combination of a ________ income and a ________ interest rate that ________ the demand for money. Select one: a. lower, higher, increases b. higher, higher, increases c. lower, higher, reduces d. higher, lower, increases
Suppose the reserve requirement for the United States is 8%. Instructions: Round your answers to the nearest whole number. a. Suppose the Federal Reserve wants to increase the money supply. What should it do to accomplish this goal? The Fed could make an [(Click to select) of $50 billion, resulting in a total increase in the money supply of $[ b. Now suppose the Fed wants to decrease the money supply. What should it do to accomplish this goal? The Fed could make an (Click to select) of $40 billion, resulting in a total decrease in the money supply of $ billion. billion.
Assume the economy is suffering from massive inflation and you are the Chairperson of the FED. What type of monetary policy would you employ and describe what changes are made to the “three tools” of monetary policy. Describe the subsequent impact on the money supply, interest rates, aggregate spending, and real GDP.