Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 14, Problem 5QP
To determine
The real
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How do you think changes for our economy will be impacted by an increase in the money supply?
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Explain the quantity theory of money and explain how the money demand, money supply, and quantity of money are related to each other? Which variable (s) will be affected if the money supply increases in the economy? Take in context to what has been happening in the U.S economy in the past few years.
Chapter 14 Solutions
Macroeconomics (Book Only)
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1VQPCh. 14 - Prob. 2VQPCh. 14 - Prob. 3VQPCh. 14 - Prob. 4VQPCh. 14 - Prob. 5VQPCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNG
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- When a consumer withdraws cash from a drawer in his house and deposits it in a savings account, the composition of the money supply immediately changes, and the size of the money supply may eventually alter as well. Demonstrate and explain how this activity may affect the money supply in an economy.arrow_forwardThe following graph plots the aggregate demand curve for this economy. Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. ? PRICE LEVEL 240 200 160 120 80 40 0 20 Aggregate Demand 40 60 80 OUTPUT (Billions of dollars) 100 120 The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. Aggregate Demand in residential and business spending, which will causearrow_forwardFor the quantity theory of money (Mv=PY), if v and Y were fixed, what would an increase in M do to P?arrow_forward
- Who determines money supply and how does the money supply curve look like?arrow_forwardSuppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be (greater/less) than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of________% The following graph plots the…arrow_forwardSuppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (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. Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be (greater/less)than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of ______%. The following graph plots the…arrow_forward
- Which of the following statements is true of the money supply? a) Increasing the money supply is a way of warding off an economic downturn. b) Decreasing the money supply is a way of warding off an economic downturn. c) The money supply is increased by lowering spending. d) The money supply is increased by raising taxes.arrow_forwardIn the long run, according to the quantity theory of money, if the money supply doubles, what happens to the price level? What happens to real GDP? In both cases, state the percentage change in either the price level or real GDP.arrow_forwardWhat happens to the purchasing power of money when the price level increases?arrow_forward
- In which situation does the value of money increase? if either money demand or money supply shifts right if either money demand or money supply shifts left if money demand shifts right or money supply shifts left if money demand shifts left or money supply shifts rightarrow_forwardA) What is the notable insight of the Quantity Theory of money? (a) An Increase in the quantity of money, ceteris paribus will result in inflation (b) A decrease in the quantity of money, ceteris paribus will result in inflation (c) An Increase in the quantity of goods and services, ceteris paribus will result in inflation (d) An Increase in the demand for money holding, ceteris paribus will result in inflation B) What is the primary purpose of the interest rate in Bagehot's rule? (a) To increase the revenue of the government (b) To decrease uncertainity (c) To eliminate moral hazard (d) To increase the revenue of the central bankarrow_forwardGive typing answer with explanation and conclusion Briefly explain the relationship between money supply and prices using the appropriate assumptions in the money supply theory.arrow_forward
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