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
What will be the effect of a rise in the interest rate on the money supply. Explain in detail.
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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- Suppose 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_forwardThe demand for money is given by Md = $Y (0.3-i), where $Y = 120 and the supply of money is $30. What is the equilibrium interest rate? If the central bank wants to decrease i by 2%, at what level should it set the supply of money?arrow_forward
- Suppose the rate of interest is initially below equilibrium. Analyze the adjustment of the money market to equilibrium assuming no shifts in the demand or supply of money.arrow_forwardEconomics 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_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_forward
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