ECNS 202 PRINTOUT
8th Edition
ISBN: 9781337096584
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 21, Problem 6PA
Subpart (a):
To determine
Demand and supply model resulting from a new legislation.
Subpart (b):
To determine
Demand and supply model resulting from a new legislation.
Subpart (c):
To determine
Demand and supply model resulting from a new legislation.
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The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "“r"?
Figure 15.2
interest rate
S*
S'
r*
B
r
r'
m*
m m'
quantity of money
a. There will be an excess demand for money.
b. The Fed will buy U.S. Treasury securities.
c. The quantity of money demanded will fall.
d. The quantity of money supplied will fall.
e. There will be an excess supply of money.
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes
the quantity of money supplied.
Suppose the price level increases from 150 to 175.
Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.
INTEREST RATE (Percent)
18
15
12
60
3
0
0
15
Money Supply
Money Demand
30
45
60
MONEY (Billions of dollars)
75
90
Money Demand
Money Supply
(?)
After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be
supplied by the Fed at this interest rate. People will try to
other interest-bearing assets, and bond issuers will find that they
equilibrium at an interest rate of
%
than the quantity of money
bonds and
interest rates until the money market reaches its new
their money holdings. In order to do so, people will
Changes to both the money supply and the velocity of money include changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different?
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