Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 16.1, Problem 1QQ
To determine
Equilibrium in money market .
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24)To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government-sponsored enterprises (GSEs) called, ________. The GSEs role was to sell bonds to investors and use the funds to purchase mortgages from _______.
Select one:
a. the Fed and the Treasury Department; Households
b. the Fed and Treasury Department; Banks
c. Fannie Mae and Freddie Mac; Households
d. Fannie Mae and Freddie Mac; Banks
e. Fannie Mae and Freddie Mac; Investment Banks
Please explain the relationship between bond market and money market. Explain the process how an increase in the money supply by the Fed lowers the interest rate through the BOND MARKET to reach the new equilbrium interest rate.
Explain the impact of increase in GDP on the interest rate.
The economy is characterized as:
C=100+0.8Yd
G=T =50
I=50-25i
MS=200
P=1
Md=Y-25i
1. What is the budgetary deficit?
2. What is the total demand for money?
3. What is the equilibrium interest rate?
Chapter 16 Solutions
Macroeconomics
Ch. 16.1 - Prob. 1QQCh. 16.1 - Prob. 2QQCh. 16.1 - Prob. 3QQCh. 16.1 - Prob. 4QQCh. 16.4 - Prob. 1QQCh. 16.4 - Prob. 2QQCh. 16.4 - Prob. 3QQCh. 16.4 - Prob. 4QQCh. 16.5 - Prob. 1QQCh. 16.5 - Prob. 2QQ
Ch. 16.5 - Prob. 3QQCh. 16.5 - Prob. 4QQCh. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Prob. 3DQCh. 16 - Prob. 4DQCh. 16 - Prob. 5DQCh. 16 - Prob. 6DQCh. 16 - Prob. 7DQCh. 16 - Prob. 8DQCh. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1PCh. 16 - Prob. 2PCh. 16 - Prob. 3PCh. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Prob. 6PCh. 16 - Prob. 7P
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- 22. An increase in the demand for bonds leads to A) a decrease in the price of bonds, a decrease in the interest rate, and a decrease in aggregate demand. B) an increase in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. C) an increase in the price of bonds, a decrease in the interest rate, and an increase in aggregate demand. D) a decrease in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. 23. A higher exchange rate for the U.S. dollar means that A) the U.S. dollar trades for less foreign currency. B) the U.S. dollar trades for more foreign currency. C) foreign currency has risen in value relative to the dollar. D) the U.S. dollar has fallen in value relative to the foreign currency. 24. An increase in the U.S. exchange rate will make U.S. exports. A) less attractive to foreigners…arrow_forward3. Draw and label the bond market graph covered in chapter 5. Then, using the graph, illustrate how the equilibrium price, yield to maturity, and quantity changes as a result of:a. An increase in expected inflation. Explain the movement from one equilibrium to another.b. A decrease in riskiness of bonds. Explain the movement from one equilibrium to another.c. An increase in the profitability of business investment. Explain the movement from one equilibrium to another.Use a different graph for each one and clearly label the axis and the shifting of curves. Explain clearly (in words and on the graph) whether the price and yield to maturity increased or decreased.arrow_forwardThe Federal Funds Rate is: A. A short-term nominal interest rate B. A short-term real interest rate C. A long-term nominal interest rate D. A long-term real interest ratearrow_forward
- 3. think through a couple of other such shifters using the bond supply/demand picture. a. Suppose that households learn that they are entering a recession. This means that they need to prepare for a higher risk of being unemployed for a long period of time. How will this possibility affect their demand for government bonds? Explain your answer. What will happen to the equilibrium interest rate in the government bond market? b. Suppose that banks are told that they must be backed by a lot more equity capital, unless their assets consist of government bonds. How will this affect their demand for government bonds? What will happen to the equilibrium interest rate in the government bond market?arrow_forwardplease i need the answer for the grapharrow_forwardStock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates a. fall in reaction to the decreased demand for bonds. b. rise in reaction to the increased demand for bonds. c. fall in reaction to the increased demand for bonds. d. rise in reaction to the decreased demand for bonds.arrow_forward
- Give typing answer with explanation and conclusionarrow_forward1. Explain the relationship between the bond market and the economy. 2: Explain what is the bond market indicating the state of the economy if the yield curve is flat. 3: Explain what is the bond market indicating the state of the economy if the yield curve is negative. 4: Explain what is the bond market indicating the state of the economy if the yield curve is positive. 5. Explain the relationship between bond prices and interest rates and the inflation rates.arrow_forwardWhen the Central Bank ________ interest rates, bond prices ________. Select one: a. raises; remain the same b. lowers; remain the same c. raises; rise d. lowers; risearrow_forward
- What is the sequence of events from a rise in the federal funds rate target range to a change in the inflation rate? Other short-term interest rates _______. A. and the long-term interest rate rise the same day B. rise the same day, but it takes a few months for the supply of loanable funds to decrease C. rise within a few weeks, but the long-run interest rate rises almost immediately D. rise the same day, but it takes a few months for the supply of loanable funds to increasearrow_forward3 In Friedman's theory, money demand is a function of a. average past income, current inflation, return on bonds, return on equities b. permanent income, expected inflation, return on money, return on bonds, return on equities c. return on bonds, return on inflation, return on equities, return on stock d. current income, expected inflation, return on money, return on bonds, return on equitiesarrow_forward1.How is GDP affected by the nominal and effective interest rate? 2.In Fiscal policy, how is GDP, spending and tax affected? 3.What is the relationship between inflation and interest rates in monetary policy?arrow_forward
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