1. Explain, with the aid of a diagram, what happens to the money supply, money demand,...
1. Explain, with the aid of a diagram, what happens to the money supply, money demand, the value of money, and the price level if the Central Bank increases the money supply.
Homework Answers
if the Central Bank increases the money supply it will increase the reserve in the banking system. There will be a pressure on the banking system to reduce the rate of interest because at the current rate of interest there is an excess supply of money. When the rate of interest is decreased, there is an increase in the general price level. Price level and value of money are inversely related which means that increase in the supply of money will decrease the value of money. This is shown in the diagram below
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1. Explain, with the aid of a diagram, what happens to the money
supply, money demand,...
1. Using separate graphs, demonstrate what happens to the money supply, money demand, the value of...
1. Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Bank of Canada increases the money supply. (6 marks) b. people decide to demand less money at each value of money. (6 marks) 2. Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended? (5 marks)
121 Using separate graphs, demonstrate what happens to the money supply, demand, the value of money,...
121 Using separate graphs, demonstrate what happens to the money supply, demand, the value of money, and the price level if: (15 marks) money a. the Fed increases the money supply b. people decide to demand less money at each value of money
Explain what happens to the interest rate if the money supply increases or decreases and the...
Explain what happens to the interest rate if the money supply increases or decreases and the money demand remains unchanged. Explain what happens to the interest rate if the money demand increases or decreases and the money supply remains unchanged.
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...
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...
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 $24 billion. The central bank of Grayfield has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 2.5 percent this year then the central bank of Grayfield will increase...
1) Explain: Who has control of the money supply in the US Economy? What happens to...
1) Explain: Who has control of the money supply in the US Economy? What happens to the interest rate if the money supply increases or decreases and the demand for money remains unchanged? 2) What are the "Tools" of the Federal Reserve? How are they used to increase the money Supply? How are they used to decrease the money supply? When would you use these policies? No less than 150 words each
2. The demand for money is: Mº = PYL (1), where P is the price level,...
2. The demand for money is: Mº = PYL (1), where P is the price level, Y is the real GDP and L () is an inverse function of the rate of interest (i.e. when i increases, L (1) decreases, and vice versa). Money supply is: M$ = 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...
If the Federal Reserve Bank purchases a large stock of bonds, what happens to money supply?...
If the Federal Reserve Bank purchases a large stock of bonds, what happens to money supply? Explain. Use the money market diagram (money demand-money supply diagram) to illustrate the effects of such an intervention on the equilibrium interest rate. Why does the interest rate change (increase or decrease) following the bond purchase by the Fed?
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
121 Using separate graphs, demonstrate what happens to the money supply, demand, the value of money, and the price level if: (15 marks) money a. the Fed increases the money supply b. people decide to demand less money at each value of money
4. If nominal money demand doubles and the real money supply also does what happens to the price level ( ). The price level increases by a factor of four b. The price level doubles ). The price level is unchanged. d. The price level falls by one-half. IL Short-Answer O stiens (19 points) 5. (7 points) If the Federal Reserve sold government securities, then the money supply (increase decrease remain the same), the money he would _(increase decrease remain...
The diagram below shows the demand for money and the supply of
money.
A) Explain why the Money Demand
Curve is a downward sloping curve.
B) Suppose the interest rate is
at iA. Explain how firms and households attempt to
satisfy their excess demand for money. What is the effect of their
actions?
C) Suppose the interest rate is
at iB. Explain how firms and households attempt to
dispose of their excess supply of money. What is the effect of...
2. The demand for money is: Mº = PYL (1), where P is the price level, Y is the real GDP and L () is an inverse function of the rate of interest (i.e. when i increases, L (1) decreases, and vice versa). Money supply is: M$ = 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...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
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