macroeconomics - financial markets
Show the change in the demand for money and the change in the supply of money graphically and the effect on the equilibrium level of interest rate and the quantity of money. The scenario is as follows:
- the increase in demand for money is equal to the increase in the supply of money
Homework Answers
An increase in money demand shifts the demand curve rightwards from Md to Md' and increase in money supply shifts the vertical supply curve rightwards from Ms to Ms'. As a result, the equilibrium interest rate increases from i to i' and quantity of money also increases from Q to Q'.
Advanced macroeconomics
a. Suppose that the macroeconomic model of an economy is given as follows:Consumption functionC = 150 + 0.85Yd , Investment function I = 350 – 10iGovernment spendingG = 200, Tax function T = 80 + 0.25YTransfer paymentsTRo = 60, Total transactions demand for money MT = 0.45YSpeculative demand for money Msp = -40i, Real moneysupply of Ms = 400Where Yd is disposable income, i is the interest rate, figures are in billions of shillings.Using this model compute the following:(i) The equilibrium rate of interest and income.(ii) The tax multiplier in the Keynesian system(iii) The crowding-out effect of additional...
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and...
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of...
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Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-secto...
KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-sector, three sector and four-sector economies Assume a 2 Suppose that for a particular economy C 2500 T-2500 G 2500 3000 a) Determine the equlbrium income and show it graphicaly Detemine thegovemment budget b) Has the economy achieved ful employment equilibrium income a employment is 350007 Whr )taxes are reduced? What is the new budget and the new funcion forax Show the outcomes graphically C- 200...
Below is a graph of the short run. Refer to the graph to answer the following...
Below is a graph of the short run. Refer to the graph to answer the following three questions 1. Move the money supply curve to show what would happen if the Bank of Canada (BoC) chose to decrease the money supply. Assume that the B over the money supply 2. As a result of the change, the interest rate at the equilibrium has complete control falls O does not change rises Money Supply 3. What leads to the adjustment in...
5. (10 Marks) The money market for the economy of Charlton is depicted in the graph...
5. (10 Marks) The money market for the economy of Charlton is depicted in the graph given below (all dollar figures are in billions): Interest rate 50 100 150 200 250 300 Quantity of money The investment demand curve is shown in the following figure. 250 50 100 150 200 Quantity of investment Suppose that the central bank of Charlton wishes to use contractionary monetary policy and decreases the money supply by $50 billion. a. Draw the new money supply...
Using the data in the table below, answer the following questions. (Hint: draw a graph when...
Using the data in the table below, answer the following questions. (Hint: draw a graph when possible) Interest Rate% Money Demand (billions of dollars) 180 580 Assume that the money supply is equal to 240 (do not use % signs in your answers) Part 1: What is the equilibrium rate of interest? Number Part 2: Assume that the Bank of Canada buys bonds and increases the money supply to 400 What is the equilibrium rate of interest? Number Part 3:...
Starting from the top drop down questions: 1. Fall / rise 2. 18% / 12% /...
Starting from the top drop down
questions:
1. Fall / rise
2. 18% / 12% / 3% / 9% / 6% / 15 %
3. increase / decrease
4. up / down
5. more / less
6. an increase / no change / a decrease
7. an increase / no change / a decrease
8. an increase / no change / a decrease
3. The Keynesian transmission mechanism Suppose the Federal Reserve shifts to an expansionary monetary policy by buying...
1. The economy is experiencing high unemployment and a low rate of economic growth and the...
1. The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy. Which action by the Bank of Canada would be most consistent with this policy? 4. If the money GDP is S600 billion and, on the average, ench dollar is spent three times per year, then the amount of money demanded for transactions purposes: will be $1800 billion. buying government securities will be 5600 billion...
ECON 1150
The following graph shows the money market in a hypothetical economy. Assume that the central bank fixes the quantity of money supplied.Suppose the price level decreases from 150 to 125.Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.Money DemandMoney Supply0510152025301815129630INTEREST RATE (Percent)MONEY (Billions of dollars)Money Demand Money Supply After the decrease in the price level, the quantity of money demanded at the initial interest rate of 9%...
Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-sector, three sector and four-sector economies Assume a 2 Suppose that for a particular economy C 2500 T-2500 G 2500 3000 a) Determine the equlbrium income and show it graphicaly Detemine thegovemment budget b) Has the economy achieved ful employment equilibrium income a employment is 350007 Whr )taxes are reduced? What is the new budget and the new funcion forax Show the outcomes graphically C- 200...
Below is a graph of the short run. Refer to the graph to answer the following three questions 1. Move the money supply curve to show what would happen if the Bank of Canada (BoC) chose to decrease the money supply. Assume that the B over the money supply 2. As a result of the change, the interest rate at the equilibrium has complete control falls O does not change rises Money Supply 3. What leads to the adjustment in...
5. (10 Marks) The money market for the economy of Charlton is depicted in the graph given below (all dollar figures are in billions): Interest rate 50 100 150 200 250 300 Quantity of money The investment demand curve is shown in the following figure. 250 50 100 150 200 Quantity of investment Suppose that the central bank of Charlton wishes to use contractionary monetary policy and decreases the money supply by $50 billion. a. Draw the new money supply...
Using the data in the table below, answer the following questions. (Hint: draw a graph when possible) Interest Rate% Money Demand (billions of dollars) 180 580 Assume that the money supply is equal to 240 (do not use % signs in your answers) Part 1: What is the equilibrium rate of interest? Number Part 2: Assume that the Bank of Canada buys bonds and increases the money supply to 400 What is the equilibrium rate of interest? Number Part 3:...
Starting from the top drop down
questions:
1. Fall / rise
2. 18% / 12% / 3% / 9% / 6% / 15 %
3. increase / decrease
4. up / down
5. more / less
6. an increase / no change / a decrease
7. an increase / no change / a decrease
8. an increase / no change / a decrease
3. The Keynesian transmission mechanism Suppose the Federal Reserve shifts to an expansionary monetary policy by buying...
1. The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy. Which action by the Bank of Canada would be most consistent with this policy? 4. If the money GDP is S600 billion and, on the average, ench dollar is spent three times per year, then the amount of money demanded for transactions purposes: will be $1800 billion. buying government securities will be 5600 billion...
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