2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be____(greater, less) than the quantity of money supplied by the Fed at this interest rate. People will try to ___(increase, decrease) their money holdings. In order to do so, people will ___(buy, sell) bonds and other interest-bearing assets, and bond issuers will find that they ___(have to offer higher, can offer lower) interest rates until the money market reaches its new equilibrium at an interest rate of ___ . The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. The change in the interest rate that you found previously will cause residential and business investment spending to _____ (rise, fall) , leading to______ (a decrease, an increase) in the quantity of output demanded in the economy. |
After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be(greater) than the quantity of money supplied by the Fed at this interest rate. People will try to (increase) their money holdings. In order to do so, people will (Sell) bonds and other interest-bearing assets, and bond issuers will find that they (have to offer higher) interest rates until the money market reaches its new equilibrium at an interest rate of 21-9=12%
Suppose the price level increases from 90 to 105
The change in the interest rate that you found previously will cause residential and business investment spending to (fall) , leading to (a decrease) in the quantity of output demanded in the economy
2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the...
Homework (Ch 21) 2. The theory of sererence and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shirt the appropriate curve on the graph to show the impact of otecrease in the overall price level on the market for money! Money Supply Money Demand...
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. After the decrease in the price level, the quantity of money demanded at the initial interest rate of 9%...
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. ASsume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. After the increase in the price level, the quantity of money demanded at the initial interest rate of 9%...
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%...
Modeling Money Graded Assignment | Due Sunday 06 30 19 at 1145 PM Attempts: Average: /8 6. The effect of Increased income in the liquidity-preference model of money A Aa The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fxes the quantity of money supplied. Suppose the price level decreases from 90 to 60. Shift the appropriate curve on the graph to show the...
36. According to liquidity-preference theory, why is the g? money-demand curve downward slopin a. because interest rates rise as the Bank the qua b. because interest rates fall as the Bank of Canada reduces the supp c. because people will want to hold less money as the cost of doing so d. because people will want to hold more money as the cost of doing rest rates fall as the ofCanada reduces the quantity of money demanded anada reduces the...
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of output demanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity of output demanded falls to $300 billion. As the price level rises, the purchasing power of households' real wealth will _______ causing the quantity of output demanded to _______...
3. How the Fed influences the money supply Which of the following are ways that the Federal Reserve influences the U.S. economy through its monetary policies? Check all that apply. O Using open-market operations to sell securities, the Fed can increase the money supply, thereby increasing interest rates and subsequently reducing the rate of inflation. O Using open-market operations to buy securities, the Fed can increase the money supply, thereby increasing interest rates, which would cause security prices to decrease. Using open-market operations to sell...
2. Money supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the _______ money the typical transaction requires, and the _______ money people will wish to hold in the form of currency...
2. Changes in the money supply The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 6% and a quantity of money equal to $0.4 trillion, as indicated by the grey...