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.PRICE LEVEL300250200150100500030Aggregate Demand6090120OUTPUT (Billions of dollars)150180Aggregate Demand?The change in the interest rate that you found previously will cause residential and business investment spending toin the quantity of output demanded in the economy., leading to 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 fixesthe quantity of money supplied.Suppose the price level increases from 150 to 175.Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.INTEREST RATE (Percent)1815126030015Money SupplyMoney Demand304560MONEY (Billions of dollars)7590Money DemandMoney Supply(?)After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will besupplied by the Fed at this interest rate. People will try toother interest-bearing assets, and bond issuers will find that theyequilibrium at an interest rate of%than the quantity of moneybonds andinterest rates until the money market reaches its newtheir money holdings. In order to do so, people will

Investors should expect a higher interest rate or premium on assets with long-term maturities that…

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. PRICE LEVEL 300 250 200 150 100 50 0 30 Aggregate Demand 60 90 120 OUTPUT (Billions of dollars) 150 180 Aggregate Demand (? The change in the interest rate that you found previously will cause residential and business investment spending to in the quantity of output demanded in the economy. " leading to

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. PRICE LEVEL 300 250 200 150 100 50 0 30 Aggregate Demand 60 90 120 OUTPUT (Billions of dollars) 150 180 Aggregate Demand (? The change in the interest rate that you found previously will cause residential and business investment spending to in the quantity of output demanded in the economy. " leading to

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter26: Monetary Policy

Section: Chapter Questions

Problem 5SQ

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Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) 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. ? INTEREST RATE (Percent) 12 10 2 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply
The following graph plots the aggregate demand curve for this economy. Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. ? PRICE LEVEL 240 200 160 120 80 40 0 20 Aggregate Demand 40 60 80 OUTPUT (Billions of dollars) 100 120 The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. Aggregate Demand in residential and business spending, which will cause
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) foxes 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. ? INTEREST RATE (Percent) 2 10 Money Supply Morey Demand 60 10 MONEY (Billions of dollars) 100 120 Money Demand The following graph plots the aggregate demand curve for this economy. BT Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they is restored in the money market at an interest rate of [ than the quantity of money their money holdings. In order to…
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) 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. 22 12 10 10 INTEREST RATE (Percent) 8 2 Money Supply Money Demand 0 0 15 30 45 60 75 90 MONEY (Billions of dollars) Money Demand Money Supply ? than the quantity of money their money holdings. In order to do so, they will Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they interest rates until equilibrium is restored in the money market at an interest rate of %
2. Money supply, money demand, and adjustment to monetary equilibrium The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 1.00 1.33 0.75 2.00 0.50 4.00 0.25 1.5 2.0 3.5 7.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less required to complete transactions, and the less money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. money
The above figure has the demand for money curve. Suppose the Fed initially sets the quantity of money equal to $0.6 trillion. Draw the supply of money curve in the figure. What is the equilibrium interest rate? Now suppose the Fed increases the quantity of money to $0.9 trillion. Draw the new supply curve. What is the new equilibrium interest rate? If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?
5. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 AD₁ 100 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ $3 AD₂
According to your graph, the equilibrium value of money is , therefore the equilibrium price level is Now, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion. In order to reduce the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply (MS2 ). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This contraction in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (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. Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be (greater/less)than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of ______%. The following graph plots the…
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (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. Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be (greater/less) than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of________% The following graph plots the…
The following graph plots equilibrium in the money market at an interest rate of 7.5% and a quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 15.0 12.5 10.0 7.5 5.0 2.5 0 0 15 Money Supply known as the Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line…
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new agregate demand curve (AD,) is parallel to AD. You can see the slope of AD by selecting it on the following graph. (? 116 114 AD, 112 AD 110 AD 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 1.5% and quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 3.0…