Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14.4, Problem 2ST
To determine
The nominal interest rate and the increase in money supply.
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The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year.
a) What happens to prices?
b) What happens to nominal interest rate?
c) Why might the government be doing this?
Which of the following will most likely cause a decrease in the quantity of money demanded?
Group of answer choices
an increase in the interest rate
an increase in the price level
an increase in nominal aggregate output
a decrease in the interest rate
The central bank decided to raise interest rates when it wanted to reduce aggregate demand to fight inflation. How does an increase in interest rates reduce aggregate demand?
Chapter 14 Solutions
Macroeconomics
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. 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. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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- Which of the following statements concerning the demand for money is false? The speculative demand for money varies directly with the level of national income. The transactions, precautionary, and speculative demands for money all vary inversely with the level of interest. The transactions demand for money is influenced by both the level of income and the interest rate.arrow_forwardSuppose in the economy of Apple Republic, the demand for money is given by Md = $Y (0.3 - i), where $Y = 100 and the supply of money (Ms) is $20. a. What is the equilibrium interest rate (i)? Answer: i = [ Select ] v %. b. If the central bank increases money supply (Ms) to $25, what is the impact on the interest rate? Answer: Interest rate (i) will [ Select ] to [ Select ] %.arrow_forwardExplain how an increase in a price level will affect the demand for money and the aggregate demand. Use relevant graphs to support your answer.arrow_forward
- Economics Suppose that the income elasticity of money demand is 0.4. Nominal interest rates do not change over time. If money supply increases by 20% every year, while real income only increases by 1%, what is the inflation rate?arrow_forward"According to Keynesian theory, an increase in the money supply can cause interest rates to fall without affecting nominal income. In this case, how does the velocity of money change? Explain and demonstrate using the money market graph."arrow_forwardShow the effects of a change in the nominal interest rate and a change in real GDP using the demand for money curve.arrow_forward
- Answer to 2 decimal digitsarrow_forwardExplain how increases in the real interest rate affect the quantity of real money balanced demanded. (Graphically illustrate)arrow_forwardConsider the Money Demand Function. a) briefly describe the effect of an increase in Expected inflation on money demand.arrow_forward
- If the money supply increases, and the price level is unchanged, interest rates will fall. True or falsearrow_forwardThe diagram on the right shows the demand for money curve in a hypothetical economy. Suppose that the economy is initially at point E. Suppose that due to changes in expectations in the financial markets, the quantity of money demanded increases because of speculative reasons. This change would be associated with a movement from E to point EB C Interest Rate % EB Eo EA Quantity of Money MD (Y,P)arrow_forwardWhich of the following is an appropriate monetary policy to combat a negative GDP gap? a. raise income tax rates b. increase government spending c. lower real interest rates d. raise real interest ratesarrow_forward
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