Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Question
Chapter 13, Problem 5E
To determine
Illustrate the change in equilibrium level of income when the Fed decreases the money supply.
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Students have asked these similar questions
Draw a graph with the quantity of money on the horizontal axis and the interest rate on the vertical axis. Initially, the
money supply curve is vertical because its determined by the Fed. The demand for money curve slopes downward,
indicating the negative relationship between the interest rate and the quantity of money demanded.
Practice
Use a money demand and supply diagram to
show and explain what will happen to interest rate
investment and RGDP if the money supply and
price level both increase.
Describe the effect on the money supply if the Fed increases the discount rate
Chapter 13 Solutions
Macroeconomics (MindTap Course List)
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Similar questions
- The above figure has the demand for money curve. Suppose the Fed initially sets the quantity of money equal to $0.6 trillion. Draw the supply of money curve in the figure. What is the equilibrium interest rate? Now suppose the Fed increases the quantity of money to $0.9 trillion. Draw the new supply curve. What is the new equilibrium interest rate? If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?arrow_forwardIf the Fed wants to increase the money supply it will buy bonds. True Falsearrow_forwardWhy can’t the Fed automatically maintain full employment and low inflation?arrow_forward
- The Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury securities, usually Treasury bills. The increase or decrease of money in circulation helps the Fed to control inflation or deflation. This has an effect on your disposable income. Research the Federal Reserve system and money supply, then answer the following questions. Under what conditions would the Fed choose to decrease the money supply, how would it do so, and what is the goal of doing so? How does the Fed factor inflation into its actions?arrow_forwardWhich of the following lists two things that both increase the money supply? a. The Fed buys bonds and raises the discount rate b. The Fed buys bonds and lowers the discount rate c. The Fed sells bonds and raises the discount ratearrow_forwardDescribe the open market operation of the Fed. What open market actions would the Fed take to expand the economy? Explain the mechanics of how this happens.arrow_forward
- The graph below shows the money market. Explain step-by-step how the money market reaches a new equilibrium when the Central Bank Increases the money supply. Remember to discus explain the movements along the curve(s) and the shits of the curve(s). Motivate your answer in four or fewer short sentences. Mp (click on the Image to enlarge It)arrow_forwardFirst, explain why the money demand curve is downward sloping. Second, explain what factor(s) will cause shifts in the money demand curve. (100 words)arrow_forwardUsing the appropriate diagram, show and explain the effect of the increase in income taxes on the equilibrium in the money market.arrow_forward
- Suppose that the Federal Reserve wants to reduce the money supply. Explain the three main policy instruments the Fed could use to reduce the money supply. In each case, detail how these policy actions are supposed to work, including the role of the private banks.arrow_forwardf the Fed wants to raise interest rates, then it can use its open market operations to: Group of answer choices decrease the money supply. increase the money supply. increase money demand. decrease money demand.arrow_forwardEconomics Suppose that a large bank borrowed $1 billion from the Federal Reserve for one week. How would this change the monetary base? If the Federal Reserve did not want the monetary base to change, what would it do? Explain your reasoning.arrow_forward
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