Question 11 Please graphically demonstrate the effects on the level of prices and the value of money if consumers increase their spending due to stock market boom and therefore make more transactions. On the other hand, the Fed decreases the money supply in the economy at the same time. Does the price level go up or down? Does the value of money go up or down?
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- Question 10a. (i).Draw a graph showing equilibrium in the money market. Carefully label all curves andaxes and explainwhy the curves have the slopesthey do.(ii). Using the graph you prepared in a(i), illustrateand explain what happens when the Central Bankdecreases the money supply.(iii).When the Central Bank decreases the money supply, the equilibrium level of income changes. Illustrate andexplain how.Homework (Ch 21) Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD₁). Suppose the government increases its purchases by $3 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 116 114 112 110 108 106 104 102 100 100 AD1 102 112 104 106 108 110 OUTPUT (Billions of dollars) 114 116 AD₂ AD 3The 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) 11 50 250 9 150 250 7 250 250 5 350 250 3 450 250 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 $200 billion increase in the money supply. Then, plot the point corresponding to the new equilibrium point using the purple point (diamond symbol). 13 MS 12 11 10 INTEREST RATE (Percent) + 5 M 9 3 2 MS Money Demand Equilibrium Equilibrium,
- 面 6Edit & eate answer both please Barter exchange is typically driven out by a money exchange system because money exchange allows more specialization. money exchange increases the amount of goods and services available in the cconomy. money exchange requires a double coincidence of wants. all of the above. only a and b above. When taxes decrease, disposable income increases, so consumption and aggregate demand increase increases, so consumption and aggregate demand decrease. decreases, so consumption and aggregate demand decrease. decreases, so consumption and aggregate demand increase. re to search 20°C2. 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. moneyWhy is the income elasticity of demand for money in precautionary motive, greater than the income elasticity of demand for money in transaction motive?
- The graph shows a demand for money curve. Draw a new demand for money curve that shows the effect of an increase in real GDP. Label it MD₁. Draw a demand for money curve that shows the effect of an increase in the number of families that have a credit card. Draw this demand for money curve in relation to the original demand for money curve, MD. Label the new curve MD2. 12- 10- 8- Nominal interest rate (percent per year) 6- 4- 2- 0 2 4 6 8 MD 10 12 ☑ Quantity of money (trillions of dollars) >>> Draw only the objects specified in the question.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. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. VALUE OF MONEY Assume that the Federal Reserve initially fixes the quantity of money supplied at $4 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. 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0 0.25 Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 8.0 0 1 2 3 5 6 QUANTITY OF MONEY (Billions of dollars) 7 According to your graph, the…When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the long-run effects of an increase in money supply? a)The price level decreases, but the quantity of money demanded increases b)The price level and the quantity of money demanded increases c)The price level and the quantity of money demanded decreases d)The price level increases, but the quantity of money demanded decreases
- Fill in the Value of Money column in the following table. Quantity of Money Demanded (Billions of dollars) Price Level (P) Value of Money (1/P) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS,) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.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 (AD₂). 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 CATE 112 110 108 106 104 102 100 100 12 A AD₁ 9 10 102 104 106 108 110 OUTPUT (Billions of dollars) 112 Money Supply N 114 116 The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 billion. þ † Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following…The money demand market is currently in equilibrium with MS = MD and the equilibrium interest rate. Now suppose that there is an increase in the price level. this will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate. Select one: a. a decrease; a rise b. no change; a rise c. no change; a fall d. an increase; a fall Please explain