Homework Answers
1) Price level : When price level increases people demand more money because they require more to purchase costly goods and services . This is under transaction demand for money .
2) Volume of output : When volume of output increases in the economy , price level falls due to excess supply . So demand for money falls .
3) Wealth : When people have more accumulated wealth , the asset demand for money falls .
4) Number and value of transactions : If it increases , more money required for each transaction , demand for money increases .
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en-ended Questions: 8. Explain how each of the following influences the demand for money (with brief...
Which of the following are ways that the Federal Reserve influences the U.S. economy through its monetary policies?
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...
1. Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth...
1. Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. c. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money,...
2. Which of the following statements about aggregate demand is (are) correct? (x) The wealth effect...
2. Which of the following statements about aggregate demand is (are) correct? (x) The wealth effect helps explain the slope of the aggregate demand curve. This effect is relatively unimportant in the United States because money holdings are a small part of consumer wealth. (y) The interest-rate effect depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. The interest-rate effect is the most important reason, in the case of the United States,...
The following graph shows the money market in a hypothetical economy. The central bank in this...
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%...
Homework (Ch 21) 2. The theory of sererence and the downward-slopingaggregate demand curve The following graph...
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...
2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the...
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...
For each of the following events, explain the short-run and long-run effects on output and the...
For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action. Answer the questions using sticky-wage theory. a) The stock market declines sharply, reducing consumer’s wealth. b) Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short run. What happens to the unemployment rate? c) A recessions overseas causes foreigners...
The following graph shows the money market in a hypothetical economy.
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%...
What role deres money have in the under Classical economic the Money serves as a catalyst...
What role deres money have in the under Classical economic the Money serves as a catalyst to increase savings and, as a result, investment b) Money has a direct influence only on the level and direction of interest rate c) Money indirectly affects output, employment and inflation. d) Money has a direct influence only on potential inflation 3) When the current market rate is greater than the original coupon rate of a bond, the price of the hand will bond...
1. If the money demand does not depend on the interest rate, then the LM curve...
1. If the money demand does not depend on the interest rate, then the LM curve ______. a. is horizontal b. is vertical c. shifts up to the right d. shifts down to the right 2. If money demand becomes more income elastic, the LM curve will __________. a. become flatter b. shift to the right c. become stepper d. shift to the left 3. The labour force is defined as _________. a. the total number of working age individuals...
1. Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. c. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money,...
2. Which of the following statements about aggregate demand is (are) correct? (x) The wealth effect helps explain the slope of the aggregate demand curve. This effect is relatively unimportant in the United States because money holdings are a small part of consumer wealth. (y) The interest-rate effect depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. The interest-rate effect is the most important reason, in the case of the United States,...
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...
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...
What role deres money have in the under Classical economic the Money serves as a catalyst to increase savings and, as a result, investment b) Money has a direct influence only on the level and direction of interest rate c) Money indirectly affects output, employment and inflation. d) Money has a direct influence only on potential inflation 3) When the current market rate is greater than the original coupon rate of a bond, the price of the hand will bond...
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