Homework Answers
If real GDP increases, it will increase the demand for money because people will demand more money when they have more income. This will shifts the demand curve for money upwards and raise the rate of interest. Interest rate rises because at the existing rate of interest, there is an excess demand for money which encourages competition among savers to raise interest rate on money
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14) Use the money demand and money supply model to show graphically and briefly explain the...
QUESTION 10 According to the quantity theory of money, if the money supply, M, increases by...
QUESTION 10 According to the quantity theory of money, if the money supply, M, increases by 10%, then A. velocity increases by 10%. B. the rate of inflation (in %) increases by 10. C. the nominal GDP increases by 10%. D. none of the above. 10 points QUESTION 11 According to the quantity theory of money and the classical model, changes in nominal money supply, M, has A. no effect on real variables. B. no effect on inflation rate....
Just need C Question 3. 2 points. Using a Money Demand-Money Supply diagram, show the effect...
Just need C
Question 3. 2 points. Using a Money Demand-Money Supply diagram, show the effect of the following two scenarios on the equilibrium interest rate. Explain in 1-2 sentences how you arrived at your answers. You must draw a money demand-money supply diagram to obtain full credit. A) The Fed purchases Treasury Bills from member banks through Open Market Operations B) The Fed increases the discount rate C) Using a SRAS-AD diagram, show the effect of each of the...
The diagram below shows the demand for money and the supply of money. A) Explain why the Money Demand Curve is a downw...
The diagram below shows the demand for money and the supply of
money.
A) Explain why the Money Demand
Curve is a downward sloping curve.
B) Suppose the interest rate is
at iA. Explain how firms and households attempt to
satisfy their excess demand for money. What is the effect of their
actions?
C) Suppose the interest rate is
at iB. Explain how firms and households attempt to
dispose of their excess supply of money. What is the effect of...
Real interest rate, r (%) Derive the LM curve graphically given the money market diagram below...
Real interest rate, r (%) Derive the LM curve graphically given the money market diagram below Real interest rate, r (%) MS 14 14 12 MD(Y $16,000) MD(Y $12,000) 50 110MD(Y $8,000 0 40 80 120 160 200 240 Real money supply and real money demanc 1.) Use the point drawing tool to plot three points, one for each level of real GDP Properly label each point. 0 2 4 6 8 10 12 14 16 18 20 Real GDP,...
When the money demand curve shifts right and the money supply is unchanged, the equilibrium price...
When the money demand curve shifts right and the money supply is unchanged, the equilibrium price level decreases and the equilibrium value of money increases. true false The money supply in Grayfield is $8 billion. Nominal GDP is $32 billion and real GDP is $24 billion. The central bank of Grayfield has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 2.5 percent this year then the central bank of Grayfield will increase...
4. If nominal money demand doubles and the real money supply also does what happens to...
4. If nominal money demand doubles and the real money supply also does what happens to the price level ( ). The price level increases by a factor of four b. The price level doubles ). The price level is unchanged. d. The price level falls by one-half. IL Short-Answer O stiens (19 points) 5. (7 points) If the Federal Reserve sold government securities, then the money supply (increase decrease remain the same), the money he would _(increase decrease remain...
2. (18 points) State whether each of the following statement is TRUE OR FALSE, and then briefly explain your answers (th...
2. (18 points) State whether each of the following statement is TRUE OR FALSE, and then briefly explain your answers (the explanation is what counts). 2.1. If the Fed lowers discount rate, it will shift LM curve to the right because it increases money demand. 2.2. When an economy is in the liquidity trap, neither monetary policy nor fiscal policy is effective in getting the economy out of recession. 2.3. Money demand is related to the functions performed by money....
10 ots The money market model shows how the interaction of potential GDP and aggregate demand...
10 ots The money market model shows how the interaction of potential GDP and aggregate demand determines the real GDP in the economy. The aggregate expenditure curve is downward sloping because people want to hold more money when the interest rate is higher ". On the other hand, the aggregate demand 7 curve is vertical If prices in the economy increase, then the money demand curve shifts inwards and the interest rate increases To lower the interest rate in the...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a chan...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
2. The demand for money is: Mº = PYL (1), where P is the price level,...
2. The demand for money is: Mº = PYL (1), where P is the price level, Y is the real GDP and L () is an inverse function of the rate of interest (i.e. when i increases, L (1) decreases, and vice versa). Money supply is: M$ = mH, where H is the high-powered money issued by the central bank and m is the money multiplier. (a) Draw the money demand and supply curves on a graph with money demand...
Just need C
Question 3. 2 points. Using a Money Demand-Money Supply diagram, show the effect of the following two scenarios on the equilibrium interest rate. Explain in 1-2 sentences how you arrived at your answers. You must draw a money demand-money supply diagram to obtain full credit. A) The Fed purchases Treasury Bills from member banks through Open Market Operations B) The Fed increases the discount rate C) Using a SRAS-AD diagram, show the effect of each of the...
The diagram below shows the demand for money and the supply of
money.
A) Explain why the Money Demand
Curve is a downward sloping curve.
B) Suppose the interest rate is
at iA. Explain how firms and households attempt to
satisfy their excess demand for money. What is the effect of their
actions?
C) Suppose the interest rate is
at iB. Explain how firms and households attempt to
dispose of their excess supply of money. What is the effect of...
Real interest rate, r (%) Derive the LM curve graphically given the money market diagram below Real interest rate, r (%) MS 14 14 12 MD(Y $16,000) MD(Y $12,000) 50 110MD(Y $8,000 0 40 80 120 160 200 240 Real money supply and real money demanc 1.) Use the point drawing tool to plot three points, one for each level of real GDP Properly label each point. 0 2 4 6 8 10 12 14 16 18 20 Real GDP,...
4. If nominal money demand doubles and the real money supply also does what happens to the price level ( ). The price level increases by a factor of four b. The price level doubles ). The price level is unchanged. d. The price level falls by one-half. IL Short-Answer O stiens (19 points) 5. (7 points) If the Federal Reserve sold government securities, then the money supply (increase decrease remain the same), the money he would _(increase decrease remain...
10 ots The money market model shows how the interaction of potential GDP and aggregate demand determines the real GDP in the economy. The aggregate expenditure curve is downward sloping because people want to hold more money when the interest rate is higher ". On the other hand, the aggregate demand 7 curve is vertical If prices in the economy increase, then the money demand curve shifts inwards and the interest rate increases To lower the interest rate in the...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
2. The demand for money is: Mº = PYL (1), where P is the price level, Y is the real GDP and L () is an inverse function of the rate of interest (i.e. when i increases, L (1) decreases, and vice versa). Money supply is: M$ = mH, where H is the high-powered money issued by the central bank and m is the money multiplier. (a) Draw the money demand and supply curves on a graph with money demand...
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