Homework Answers
We assume that the economy starts with its long run equilibrium at where LRAS, SRAS and AD meet at a single equilibrium where GDP is at its full employment level
a) This action by Fed increases the liquidity in the economy. With increased money supply and reduced rate of interest, investment spending rises and this increases aggregate demand AD. AD shifts right, thereby creating an inflationary gap where real GDP and price level both are increased.
b) This action by Fed decreases the liquidity in the economy when banks reduce their borrowings from the Fed. With decreased money supply and increased rate of interest, investment spending falls and this decreases aggregate demand AD. AD shifts left, thereby creating an recessionary gap where real GDP and price level both are decreased.
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Question 3. 2 points. Using a Money Demand-Money Supply diagram, show the effect...
3. (a) Use a diagram of the demand and supply of money to depict the impact...
3. (a) Use a diagram of the demand and supply of money to depict the impact of (i) the Fed selling bonds on the open market; (ii) the Fed lowering the reserve requirement. What is the effect of these monetary policies on the price level in the economy? Draw a separate diagram for each case. 4. What is the effect on the U.S. aggregate demand in each of the following events? Which component of AD is affected? a. Business owners...
) Use an Aggregate Demand – Aggregate Supply model beginning at full employment (RGDP=PGDP) to show...
) Use an Aggregate Demand – Aggregate Supply model beginning at
full employment (RGDP=PGDP) to show the effects that an “easy
money” policy of low interest rates and easy credit by the Fed
would have on the U.S. economy.
LRAS SRAS To AD Y Yo
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...
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level....
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level. Use I to denote the amount of labour to denote the amount of labour hired. bour market where the real wage is stuck note the amount of labour willing to work and L1 Now suppose there is an increase in technology that raises the demand the new demand curve and explain what happens to the and curve and explain what happens to the number...
5. Using a supply and demand graph of the market for money, show the effects on...
5. Using a supply and demand graph of the market for money, show the effects on the nominal interest rate if the Fed takes the following monetary policy actions: (LO2, LO3) a. The Fed lowers the discount rate and increases dis- count lending. b. The Fed increases the reserve requirements for com- mercial banks. c. The Fed conducts open market sales of government bonds to the public. d. The Fed decreases the reserve requirements for como mercial banks.
1.A. Graph an increase in the money supply and the most likely effect this will have...
1.A. Graph an increase in the money supply and the most likely effect this will have on the AD/AS model. Explain briefly the link between the two graphs. 2.B. Graph an increase in aggregate supply. What effect is this likely to have on the Phillips curve? 3. Finally, use an AD/AS diagram to show what will happen if workers with adaptive expectations demand and receive a 10% wage increase while the chair of the Fed carries through with monetary policies...
14) Use the money demand and money supply model to show graphically and briefly explain the...
14) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases. (8 points)
Using Supply and Demand Diagrams, Show the effect of the following eventson the market for computers,...
Using Supply and Demand Diagrams, Show the effect of the following
eventson the market for computers, Draw one graph for each part.
All universities mandate income Freshmen to have access to computers. Show in a diagram the direction that demand curve moves what happened to the equilibrium price and quantity? Several components used in the construction of computers become cheaper. Show in another diagram the direction the supply curve moves what happens to the equilibrium price and quantity?
• if the velocity of money is 2, the money supply in this economy is ($4.5 trillion/ $18 trillion/ $27 trillion/ $3...
• if the velocity of money is 2, the money supply in this
economy is ($4.5 trillion/ $18 trillion/ $27 trillion/ $36
trillion/ $45trillion /$54 trillion)
•because ( the federal reserve controls M/ velocity is assumed
to be constant/ the AD curve is downward sloping ), the percentage
increase in the price level Is ( less then/ the same as/ greater
then ) the percentage increase im the money supply. the illustrates
the ( importance of the federal reserve /...
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...
3. (a) Use a diagram of the demand and supply of money to depict the impact of (i) the Fed selling bonds on the open market; (ii) the Fed lowering the reserve requirement. What is the effect of these monetary policies on the price level in the economy? Draw a separate diagram for each case. 4. What is the effect on the U.S. aggregate demand in each of the following events? Which component of AD is affected? a. Business owners...
) Use an Aggregate Demand – Aggregate Supply model beginning at
full employment (RGDP=PGDP) to show the effects that an “easy
money” policy of low interest rates and easy credit by the Fed
would have on the U.S. economy.
LRAS SRAS To AD Y Yo
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...
1. Labour Market. Draw a diagram of the labour market where there above the equilibrium level. Use I to denote the amount of labour to denote the amount of labour hired. bour market where the real wage is stuck note the amount of labour willing to work and L1 Now suppose there is an increase in technology that raises the demand the new demand curve and explain what happens to the and curve and explain what happens to the number...
5. Using a supply and demand graph of the market for money, show the effects on the nominal interest rate if the Fed takes the following monetary policy actions: (LO2, LO3) a. The Fed lowers the discount rate and increases dis- count lending. b. The Fed increases the reserve requirements for com- mercial banks. c. The Fed conducts open market sales of government bonds to the public. d. The Fed decreases the reserve requirements for como mercial banks.
14) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases. (8 points)
Using Supply and Demand Diagrams, Show the effect of the following
eventson the market for computers, Draw one graph for each part.
All universities mandate income Freshmen to have access to computers. Show in a diagram the direction that demand curve moves what happened to the equilibrium price and quantity? Several components used in the construction of computers become cheaper. Show in another diagram the direction the supply curve moves what happens to the equilibrium price and quantity?
• if the velocity of money is 2, the money supply in this
economy is ($4.5 trillion/ $18 trillion/ $27 trillion/ $36
trillion/ $45trillion /$54 trillion)
•because ( the federal reserve controls M/ velocity is assumed
to be constant/ the AD curve is downward sloping ), the percentage
increase in the price level Is ( less then/ the same as/ greater
then ) the percentage increase im the money supply. the illustrates
the ( importance of the federal reserve /...
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...
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