Assume that the money demand function is (M/P)^d= 2200 – 20000i, where i is the interest rate. The real money supply is 1000. The equilibrium interest rate is: a. 2% b. 4% C. 6% d. 8% e. none of the aboves
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- a) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. The real risk-free rate of return on theseT-bills was: b) When individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties, they are most likely in the phase of the investment life cycle. gifting B. consolidation C. accumulation D. spending c) Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000. The current market price of the bond is $950.25. If the YTM of the bond dropped by 1%, what would happen to the bond price?Assume that money demand in a given economy is represented with MD = 100Pe 2 -50i where i is the nominal interest rate expressed in decimal form. Moreover, assume that the real interest rate is equal to 0 and money is neutral. What is the seignorage maximizing level of the rate of growth of money? a) 2% b) 5% c) -3% d) None of the aboveSuppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
- In a particular economy the real money demand function is Real Interest Rate, r (%) 0.451 M 0.40- 3,000 + 0.10Y-9,000i. P 0.35- Assume that M = 7,000 and P = 2. Initially, expected inflation, zewas 0.02. Initially, when Y= 8000, the real interest rate of 0.013 cleared the asset market and when Y = 9000, the real interest rate of 0.024 cleared the asset market. The initial LM curve is drawn as 0.30- 0.25 0.20- LM,. 0.15- Now suppose that the expected inflation rate increases to 0.03. Using the new expected inflation rate, calculate the real interest rate that clears the asset market when Y = 8000. (Enter your answer in decimals, rounded to three decimals.) D. This is point C. 0.10- LM, 0.05- 0.00+ 7 8 10 Output, Y (thousands)Suppose the money demand function is Md/P = 1000+ 0.2Y - 1000 (r + π²). and Y = 2000, r = .06, π = .04, and Ms is 2600. Suppose the real interest rate rises to 0.11, and expected inflation rises to 0.09, but Y and Ms are unchanged. What would the inflation rate be? Select one: a. 4% b. 10% O c. 6% d. 8%D: the magnitude of the change in investment would depend on the slopes of the real money demand curve and the investment demand curve. Under what conditions would there be a large change?
- C=300+0.50(Y-T) Investment function is I=100-20t Government purchases and taxes are both 150 Money demand function (M/P)d=Y-150r Money supply M=1000 Price level P=2 a. Calculate equilibrium interest rate r b. Calclate equilibrium level of income YDetermine the equilibrium income y and interest rate r,given the following information about the commodity market C=0.6Y+60 I=-40r+1300 Where C and I dwnote consumption and planned invesment ,respectively,and the following information about the money market Ms=600L1=0,2y L2=-30r+40Which of the following can hurt economic growth in the short run but help it in the long run? O population growth O improved health and nutrition O enforcement of property rights O increased educational attainment O political stability Question 31 Assume the RRR is 8% and that the deposit creation multiplier works as described in class (i.e., the "simplified" deposit creation multiplier). What will be the total of deposits in the banking system resulting from an initial deposit of $1,000? O $8,000 O $5,000. $10,000 O $1,250
- Let the IS equation be given as A g Y 1-b 1-b where 1-b is the marginal propensity to save, g is the investment sensitivity to the interest rate i, and A is an aggregate of exogenous variables. Let the LM equation be Mo Y = +-i, k k where k and I are income and interest sensitivity of money demand, respectively and Mo is is the real money balances. If b=0.7,g=100, A = 252, k = 0.25,1=200, and Mo = 176, then the IS-LM equations are and Solve for Y and i. 1000 Yi=840, 3 Y-800i = 704.Given the following informations; Consumption(C) 800+0.9Y, Where Y-Income Investment (I) =8000-800r, where r=interest rate Money Supply (Ms) =28500 Demand for Money (Md) =0.75Y-1500r and if the autonomous Investment decreased then %3D income decreased and interest rate increased. income increased and interest rate decreased. O income decreased and interest rate decreased income increased and interest rate increasedThe following set of equations describe an economy:C= 15,000 + 0.75(Y – T) – 45,000rIp= 10,000 – 22,500rG= 8,200NX= 1,800T= 8,500Y*= 82,100Find PAE equation and what should be the interest rate to eliminate the outputgap.