Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 34, Problem 3PA
Subpart (a):
To determine
Increase in demand for money.
Subpart (b):
To determine
Increase in demand for money.
Subpart (c):
To determine
Increase in demand for money.
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Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money.
Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate will , which causes aggregate demand to .
If instead the Fed wants to stabilize aggregate demand, it should the money supply by government bonds.
5) Suppose a computer virus disables the nation’s automatic teller machines , making withdrawals from bank accounts less convenient .As a result, people want to keep more cash on hand ,increasing the demand for money.
a) Assume the Fed does not change the money supply . According to the theory of liquidity preference,what happens to the interest rate? What happens to aggregate demand.
b) If instead the Fed wants to stabilize aggregate demand, how should it change the money supply?
C) If its want to accomplish this change in the money supply using open-market operations,what should it do?
a) Explain what happens to Money Demand when each of the following occurs:
i, incomes rise;
ii. the interest rate rises.
b. Use the money market to explain why the aggregate demand curve slopes downward.
Chapter 34 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- After the Federal Reserve buys bonds, the interest rate changes and aggregate expenditures change, the following will most likely occur a the price level in the economy will fall and money demand will decrease b the price level in the economy will rise and the money demand will decrease c the price level in the economy will fall and money demand will increase d the price level in the economy will rise and the money demand will increasearrow_forwardThe Fed wants to decrease the money supply when the economy is booming and inflationary pressures ________ in the economy.arrow_forwardThe above figure has the demand for money curve. Suppose the Fed initially sets the quantity of money equal to $0.6 trillion. Draw the supply of money curve in the figure. What is the equilibrium interest rate? Now suppose the Fed increases the quantity of money to $0.9 trillion. Draw the new supply curve. What is the new equilibrium interest rate? If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?arrow_forward
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