(9) (B)
Initially,
(M/P) = 2,000/2 = 1,000
2,200 - 200r = 1,000
200r = 1,200
r = 6%
After increase in M,
(M/P) = 2,800/2 = 1,400
2,200 - 200r = 1,400
200r = 800
r = 4%
Decrease in r = 6% - 4% = 2%
(10) (A)
In Keynesian cross, investment is assumed autonomous. But in IS LM model, investment is negatively related to interest rate. So when fiscal expansion increases government borrowing, thus increasing interest rate, it dampens investment, crowding out investment demand.
9. Assume that the money demand function is ( M P)d= 2,200 – 200r, where r...
Assume that the money demand function is (M / p)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000 b. 1,800 C. 1,600 O d. 1,400
Hi the answer to 53 is D and the answer to 54 is B. I am unsure how to get these answers. 53. Assume that the money demand (function), L(r, Y)Y-100r, where r is the interest rate in percent. The money supply Mis 2,000, Y-2,000 and the price level Pis 2. With the above, at Y 2,000, the (equilibrium) interest rate for the money market equilibrium equation is_ A) 2percent B) 4 C) 6 D) none of the above 54....
Suppose that the money demand function is (M/P)d = 800 - 50r, where r is interest rate in percent. The money supply M is 2,000 and the price level P is fixed at 5. a. Graph the supply and demand for real money balances. b. What is equilibrium interest rate? c. What happens to the equilibrium interest rate if the supply of money is reduced from 2000 to 15000? d. If the central bank wants the interest rate to be...
Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2.(a) Graph the supply and demand for real money balances.(b) What is the equilibrium interest rate?(c) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?(d) If the Fed wishes to raise the interest rate...
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the...
Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate (on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the demand...
t t Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than...
Please box answers! Thank you. 11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point) to indicate the equilibrium in this market. Dashed drop lines will automatically extend to both axes. REAL INTEREST RATE [Percent) 10 Equilibrium Supply New Supply New Equilibrium Demand 3 0 10 20 30 40 50 60 70 80 90 100 REAL MONEY BALANCES Help...
Question 2: Money market Suppose that the money demand function is (M/P) = 0.75 Y - 200r The money supply M is 6000 and the price level is 2. a. Graph the supply for real money balances on a new graph (label it "figure 3"), and label the supply of real money balances (M/P). g. Suppose that the income is 6000. Complete Table 1 and draw the demand for real money balances curve ((M/P'] in figure 3. Find the value...
10. In the Keynesian Cross analysis, if the consumption function is given by C = 100 + 0.6(Y − T) and planned investment is 100, G = T = 100, then equilibrium Y is: a) 350 b) 400 c) 600 d) 750 11. Assume that the money demand function is L(r) = 2200 − 200r, where r is the interest rate in percent. The money supply is 2000 and the price level is 2. The equilibrium interest rate is percent....