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If the money supply curve is upward-sloping, the technical term for the money supply is:
a) Inelastic
b) Unstable
c) Endogenous
d) Exogenous
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- With all other exogenous variables at their original levels, suppose the Central Bank attempts to stimulate the economy by increasing money supply M from 3000 to 3300. Calculate the new values of Y, e and NX. Explain the mechanism by which a new equilibrium is reached.Similar to how the quantity demanded for a good depends on its price, the quantity of money demanded depends on the cost of holding money, or the nominal interest rate (i). In addition to this, the demand for real money balances is also a function of income (Y). Using all of this information, suppose the demand for real money balances takes on the following functional form: (M/P)dd=500 + 2Y – 9i The Fisher equation relates the nominal interest rate to the real interest rate (r) and the expected rate of inflation (Eπ) when examining ex-ante (based on forecasts or 'before the event') effects. The equation ( (M/P)dd = 500 + 2Y – 9(Eπ – r)/(M/P)dd = 500 + 2Y – 9(r – Eπ) / (M/P)dd = 500 + 2Y + 9(r + Eπ) / (M/P)dd = 500 + 2Y – 9(r + Eπ) ) is equivalent to the function given for the demand for real money balances. Suppose the central bank announces that it will increase the money supply in the future, but it does not change the money supply today. Complete the following…Multiple Choice. Select the most suitable answer. The speculative demand for money suggests that: (a) Individuals hold onto money for the purpose of engaging in transactions (b) As the rate of interest rate increases, the demand for money will rise (c) When the economy becomes more uncertain, people are more likely to hold unto money (d) The velocity of money is constant (e) As the rate of interest falls, the demand for money will rise.
- Firms require capital to invest in productive opportunities. The best firms with the most profitable opportunities can attract capital away from inefficient firms with less profitable opportunities. Investors supply firms with capital at a cost called the interest rate. The interest rate that investors require is determined by several factors, including the availability of production opportunities, the time preference for current consumption, risk, and inflation. Suppose the Federal Reserve (the Fed) decides to tighten credit by contracting the money supply. Use the following graph by moving the black X to show what happens to the equilibrium level of borrowing and the new equilibrium interest rate. S2 S1 16 D Equilibrium INTEREST RATE, r (Percent)Which of the following will block an increase in the money supply from increasing real GDP (presumably to fight a recession)? Group of answer choices A) A situation in which business investment is negatively related to the interest rates. B) A situation in which the money demand curve is negatively sloping. C) A situation in which an increase in money supply causes a decrease in interest rates. D) A situation in which Aggregate Demand is negatively sloping. E) A situation in which business investment is completely insensitive to interest rate changes.The Central Bank of country AVC decides to reduce the money supply. The short run effect of this action on real variables under Lucas Rational Expectation model, would be different if the decrease is expected as compared when it is not. Explain the above statement with the help of appropriate diagrams.
- Suppose the Bank of Canada increases the money supply. We can conclude that: A) GDP has been growing rapidly. B) unemployment has been rising. OC) all of the answers are correct D) inflation has been rising. $PLEASE ANSWER ALL MULTIPLE CHOICE QUESTIONS (1-4) 1. Which of the following is FALSE in regards to an overnight target rate of 3.25%? a) The Bank of Canada will pay 3% interest on Chartered Banks' deposits with the Bank of Canada. b) The Bank of Canada will charge 3.5% on loans taken by the Chartered Banks from the Bank of Canada. c) The unemployment rate MUST be equal to the overnight target rate. Hence the unemployment rate is ALSO EQUAL to 3.5%. d) The overnight target rate is the interest rate that Chartered Banks will use when borrowing and lending money to each other. e) There are NO FALSE statements. All solutions provided are correct. 2. If there is an expected increase in Canada's overnight rate, what should we expect to occur? a) The Canadian dollar will be more valuable relative to other currencies. The Canadian dollar sees an increase in demand by foreigners seeking Canadian bonds and interest bearing investments. b) Canadian exports will rise. c) The stock market will…MD = a1 + a2 Y + a3 R + a4 P + u (1)MS = B1 + B2 Y + e (2)MD= MS = M* (3) In this system of equations, MD represents money demand, MS money supply, Y national income, R interest rate, and P price level. u and e are the random errors. (3) shows the equilibrium condition in money market.a) Show the endogenous and exogenous variables in this system and indicate if regressions (1) and/or (2) are identified. b) Given the system of equations, show how you estimate regression (2) using 2SLS method. Explain.
- If banks start paying higher interest rates on checking accounts, we would expect, assuming everything else held equal, Group of answer choices a) the demand for money to become more sensitive to changes in the interest rate. this is not correct b) the demand for money to become horizontal. c) the relationship between interest rates and the demand for money to be unaffected. d) the demand for money to become less sensitive to changes in the interest rate. e) a decrease in the supply of money.The natural rate of unemployment (NRU) is the long-run equilibrium rate of unemployment within the monetarist macroeconomic model. The NRU depends on which of the following? (a) The structure of the economy and in particular the level of aggregate supply; (b) The structure of the economy and in particular the level of aggregate demand; (c) The structure of the economy and in particular the institutions within it; (d) The structure of the economy and in particular the price of oil.An IS curve shows: (a) that realized savings are most likely a function of interest rates, because changes in interest rates result in changes in precautionary demand for money; (b) the combinations of investments and incomes that result in the supply and demand for money being equal to one another; (c) the locus of all combinations of interest rates and incomes that will result in realized investment and realized savings being equal to one another; (d) that increases in output typically are caused by increases in interest rates.
