Question

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 the graph, use the blue points (circle symbol) to graph the money demand, and the black point (plus symbol) to signify the initial equilibrium point in the market. Next, shift the money supply curve to show the affects of a $400 billion decrease in the money supply. Then, plot the point corresponding to the new equilibrium point using the purple point (diamond symbol). Money Demand INTEREST RATE (Percent) HHHHHHHHHHHHHHH Equilibrium, Equilibrium + 0 + 100 + + + + + 200 300 400 500 600 700 QUANTITY (Billions of dollars) + 800 + 900 1000 falls Before the Fed decreased the rises equilibrium interest rate was %. remains the same The Fed decreased the monel ion. This results in a shortage of money in the system, so people interest rate in the economy . The new equilibrium rate of interest is now %. bonds. Because of this, the

Answer 1

When the money supply is 500, downward sloping money demand meets the money supply curve at an interest rate of 9%.

However when money supply is decreased by 400, there is a shortage of money supply so that there is an upward pressure on the rate of interest

As people starts buying bonds, bond price falls and this raises the rate of interest. This is shown below

Correct choices are 1) 9%, 2) buy 3) rises, 4) 13%

MS Equilibrium A + Equilibrium, + INTEREST RATE (Percent) + + + Money Demand + + + + + 0 100 200 800 900 1000 300 400 500 600 700 QUANTITY (Billions of dollars)