Relation between money supply and aggregate demand.

Question

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Answer 1

Question

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

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16:10 ← BEC 3701 - Assignments-... KWAME NKRUMAH UNIVERSITY TEACHING FOR EXCELLENCE SCHOOL OF BUSINESS STUDIES DEPARTMENT OF ECONOMICS AND FINANCE ADVANCED MICRO-ECONOMICS (BEC 3701) Assignments INSTRUCTIONS: Check instructions below: LTE 1) Let u(q1,q2) = ln q₁ + q2 be the (direct) utility function, where q₁ and q2the two goods. Denote P₁ and P2 as the prices of those two goods and let M be per period money income. Derive each of the following: a) the ordinary or Marshallian demand functions q₁ = d₂ (P₁, P₂, M) for i = 1,2 [3 Marks] b) the compensated or Hicksian demand functions q₁ = h₂ (P₁, P2, M) for i = 1,2 [3 Marks] c) the Indirect Utility Function uº = v(P₁, P2, M) [3 Marks] d) the Expenditure Function E(P1, P2, U°) [3 Marks] e) Draw a diagram of the solution. There should be two graphs, one above the other; the first containing the indifference curves and budget constraint that characterize the solution to the consumer's choice problem; the second characterizing the demand…

Answer 2

Question

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

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Answer 3

Question

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

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Answer 5

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

Answer 6

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

Answer 7

Chapter 21, Problem 1CQQ

To determine

Relation between money supply and aggregate demand.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

By the theory of liquidity preference, an increase in the money supply shifts the money supply curve to the right causing the equilibrium interest rate to decrease. This stimulates consumption and investment, thereby expanding aggregate demand. Thus, option ‘b’ is correct.

Option (a):

Increase in money supply shifts the money supply curve to the right, which lowers the interest rate. Thus, option ‘a’ is incorrect.

Option (c):

By the theory of liquidity preference, a decrease in money supply shifts the money supply curve to the left causing the equilibrium interest rate to increase. This reduces consumption and investment, thereby contracting aggregate demand. Thus, option ‘c’ is incorrect.

Option (d):

Decrease in money supply shifts the money supply curve to the left, which increases the interest rate. Thus, option ‘d’ is incorrect.

Answer 12

Economics Concept Introduction

Concept introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period.

Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period.

Answer 13

Ch. 21.1 - Prob. 1QQ Ch. 21.2 - Prob. 2QQ Ch. 21.3 - Prob. 3QQ Ch. 21 - Prob. 1CQQ Ch. 21 - Prob. 2CQQ Ch. 21 - Prob. 3CQQ Ch. 21 - Prob. 4CQQ Ch. 21 - Prob. 5CQQ Ch. 21 - Prob. 6CQQ Ch. 21 - Prob. 1QR

Relation between money supply and aggregate demand.

Solution Summary: The author explains the relationship between money supply and aggregate demand. Option 'b' is correct.

Relation between money supply and aggregate demand.

Answer to Problem 1CQQ

Explanation of Solution

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Chapter 21 Solutions