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TALS. LOJ INTEREST RATE 4. Illustrate the effects on investment of LO15-2 (a) An interest rate...
7) Given the relationship between interest rates and planned investment planned investment A) increases if the inte...
7) Given the relationship between interest rates and planned investment planned investment A) increases if the interest rate drops from 6% to 4%. B) increases if the interest rate rises from 6% to 8%. C) is unaffected by any changes in interest rates. D) both A) and B) are correct. 8) To combat a recession with fiscal policy, the government should A) reduce government spending. B) reduce taxes on consumers to increase consumer disposable income. C) lower interest rates and...
In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the...
In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a) First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b) Draw an...
36. Consider a depressed economy that, even after significant monetary stimulus efforts that pushed short-term interest...
36. Consider a depressed economy that, even after significant monetary stimulus efforts that pushed short-term interest rates to close to zero, still experiences a recessionary gap of 1,200 billion dollars and 10% unemployment rate. Economist estimate that the marginal propensity to consume is 0.75. Adress the following questions, briefly justifying all your answers. a) Would an increase in the money supply by the Fed help reduce the recession and the unemployment? Explain why or why not?
Use the graph to illustrate the effects of inflation on the money market. The interest rate...
Use the graph to illustrate the effects of inflation on the money market. The interest rate is the opportunity cost of holding money. What happens to the opportunity cost of holding money 10 Money supply when inflation occurs? 8 The opportunity cost of holding money decreases. 7 The opportunity cost of holding money increases 6 The opportunity cost of holding money is constant 5 The opportunity cost of holding money increases 4 but then decreases. Money demand 2 1 250...
The following table shows the quantity of money supplied and the quantity of money demanded for various interest rates 4...
The following table shows the quantity of money supplied and the
quantity of money demanded for various interest rates
4. Study Questions and Problems #4 The following table shows the quantity of money supplied and the quantity of money demanded for various interest rates. Interest Rate (Percent) Demand for Money (Billions of dollars) Supply of Money (Billions of dollars) 500 100 300 500 500 700 900 500 500 500 The following graph depicts the money supply curve in orange. On...
Ch.20 1. 1. Premature to rule out an interest rate increase this year In the current...
Ch.20 1. 1. Premature to rule out an interest rate increase this year In the current state of the economy, it would be worse for the Fed to raise rates too soon than moving slightly too late and adjusting by raising rates more quickly Source: Wall Street Journal, August 1, 2016 What are some of the problems that could arise if the Fed raises interest rates too soon or too late 2. Suppose that inflation is rising toward 5 percent...
Suppose a bond pays annual interest of $200. Compute the interest rate per year that a bondholder can earn for each face value in the following table. Face Value (Dollars) 1,000 2,000 4,000 Interes...
Suppose a bond pays annual interest of $200. Compute the interest rate per year that a bondholder can earn for each face value in the following table. Face Value (Dollars) 1,000 2,000 4,000 Interest Rate per Year (Percentage) If the annual interest paid stays the same and the face value of the bond goes up, then the interest rate paid for the bond per year The following table shows the quantity of money supplied and the quantity of money demanded...
7. If at some interest rate desired investment is $400 billion, desired private saving is $600...
7. If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates? 8. In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, public saving and...
question 15 QUESTION 15 Interest MS Rate MS, Interest Rate Iz Planned Investment Quantity of Money...
question 15
QUESTION 15 Interest MS Rate MS, Interest Rate Iz Planned Investment Quantity of Money Price Level LRAS SRAS, SRAS AD AD Real GDP in Trillions per Year In the above figure, suppose the economy is at a short-run equilibrium at point and the interest rate is r 2. Which of the following policy options for the Fed will help solve the short-run situation? open market sale of government securities lowering the differential between the discount rate and the...
Consider an economy in which taxes, planned investment, government spending on goods and services, and net...
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 10r; c = 0.6; Ta = 1,800; Ip = 2,400 – 50r; G = 2,000; NX = -200 (a)Derive Ep and...
7) Given the relationship between interest rates and planned investment planned investment A) increases if the interest rate drops from 6% to 4%. B) increases if the interest rate rises from 6% to 8%. C) is unaffected by any changes in interest rates. D) both A) and B) are correct. 8) To combat a recession with fiscal policy, the government should A) reduce government spending. B) reduce taxes on consumers to increase consumer disposable income. C) lower interest rates and...
36. Consider a depressed economy that, even after significant monetary stimulus efforts that pushed short-term interest rates to close to zero, still experiences a recessionary gap of 1,200 billion dollars and 10% unemployment rate. Economist estimate that the marginal propensity to consume is 0.75. Adress the following questions, briefly justifying all your answers. a) Would an increase in the money supply by the Fed help reduce the recession and the unemployment? Explain why or why not?
Use the graph to illustrate the effects of inflation on the money market. The interest rate is the opportunity cost of holding money. What happens to the opportunity cost of holding money 10 Money supply when inflation occurs? 8 The opportunity cost of holding money decreases. 7 The opportunity cost of holding money increases 6 The opportunity cost of holding money is constant 5 The opportunity cost of holding money increases 4 but then decreases. Money demand 2 1 250...
The following table shows the quantity of money supplied and the
quantity of money demanded for various interest rates
4. Study Questions and Problems #4 The following table shows the quantity of money supplied and the quantity of money demanded for various interest rates. Interest Rate (Percent) Demand for Money (Billions of dollars) Supply of Money (Billions of dollars) 500 100 300 500 500 700 900 500 500 500 The following graph depicts the money supply curve in orange. On...
Suppose a bond pays annual interest of $200. Compute the interest rate per year that a bondholder can earn for each face value in the following table. Face Value (Dollars) 1,000 2,000 4,000 Interest Rate per Year (Percentage) If the annual interest paid stays the same and the face value of the bond goes up, then the interest rate paid for the bond per year The following table shows the quantity of money supplied and the quantity of money demanded...
question 15
QUESTION 15 Interest MS Rate MS, Interest Rate Iz Planned Investment Quantity of Money Price Level LRAS SRAS, SRAS AD AD Real GDP in Trillions per Year In the above figure, suppose the economy is at a short-run equilibrium at point and the interest rate is r 2. Which of the following policy options for the Fed will help solve the short-run situation? open market sale of government securities lowering the differential between the discount rate and the...
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