Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 5P
Sub-part
A
To determine
whether the fed would increase or decrease the money supply.
Sub-Part
B
To determine
whether the fed should buy or sell government securities in case it uses open market operations.
Sub-Part
C
To determine
whether the interest rate and the quantity of money demanded would increase, decrease or remains unchanged.
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2. Money supply, money demand, and adjustment to monetary equilibrium
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).
Fill in the Value of Money column in the following table.
Quantity of Money Demanded
Price Level (P) Value of Money (1/P)
(Billions of dollars)
0.80
1.25
2.0
1.00
1.00
2.5
1.33
0.75
4.0
2.00
0.50
8.0
mon
Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the more
the typical transaction requires, and the more money people will wish to hold in the form of currency or demand deposits.
Assume that the Fed initially fixes the quantity of money supplied at $4 billion.
Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue
connected points (circle symbol) to graph the money demand curve.
2.00
O
1.75
MS₁
1.50
1.25
Money Demand
1.00
0.75
MS₂
0.50…
37.
Supply-side economics is the school of thought that advocates the use of
A)
monetary policy to stimulate long-run aggregate supply.
B)
fiscal policy to stimulate long-run aggregate demand.
C)
monetary policy to stimulate short-run aggregate demand.
D)
fiscal policy to stimulate long-run aggregate supply.
2. Money supply, money demand, and adjustment to monetary equilibrium
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).
Fill in the Value of Money column in the following table.
Quantity of Money Demanded
Price Level (P)
Value of Money (1/P)
(Billions of dollars)
1.00
2.0
1.33
2.5
4.0
2.00
4.00
8.0
Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the
Y money the typical transaction requires, and the
y money people will
wish to hold in the form
currency or demand deposits.
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- ? 2. Money supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 kkkk Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money people will wish to hold in the form of currency or demand deposits. typical transaction requires, and the Assume that the Fed initially fixes the quantity of money supplied at $2.5 billion. money the Oct 9 11:59 Sarrow_forward138.) Austrian economists are worried about monetary policy that increases the money supply because An increase in the money supply causes consumers to borrow more - potentially too much more - in the short-run (overconsumption) An increase in the money supply reduces savings and increases future income available for new products An increase in the money supply causes investors to invest in projects that have higher expected rates of return (malinvestment) all of the above are correctarrow_forward8. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. The current tax system acts as an automatic stabilizer. Businesses make investment plans many months in advance. Which of the following are examples of automatic stabilizers? Check all that apply. O Personal income taxes Unemployment insurance benefits Corporate income taxesarrow_forward
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