Suppose the law changes and the corporate income tax rate has been cut in half. As a result, corporations decide to purchase new buildings and equipment. As a result we can expect a shift in the [ Select ] supply of or demand for funds curve and as a result the equilibrium interest rate will [ Select ] increase or decrease .
Q: A government takes action to reduce the size of its budget deficit. This action will cause the…
A: Meaning of Budget Deficit: The term budget deficit refers to the situation under which the…
Q: If the central bank’s goal is to maximize output, what interest rate will we expect in equilibrium?
A: The equilibrium real interest rate is the real rate of return which must be maintained to keep the…
Q: Explain in your own words how interest rate brings financial market into equilibrium. Explain with…
A: An FM {financial market} depicts a market in which individuals trade financial derivatives or…
Q: If government spending were increased, what would occur to interest rates
A: Government spending refers to the money spent by the government on things like health care,…
Q: Suppose a wave of investor and consumer pessimism in the USA causes a reduction in spending. If the…
A: If the US Fed chooses to engage in stabilization policy it should try to increase the money supply…
Q: On the previous graph, use the purple line (diamond symbol) to show how the stabilization fund…
A: Action is shown by line S3 and the new exchange rate is determined by point B.
Q: If Central Bank buys security bills in the open market; then what happens to equilibrium interest…
A: IS curve is the investment-saving curve that represents the equilibrium in the goods market of the…
Q: If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will…
A: When the output gap is negative that means the economy is producing less than what it could have…
Q: Is the following statement TRUE or FALSE? Please provide reason for the answer. If the central bank…
A: Open market operation refers to the selling and buying of government bonds by the central bank.
Q: if the current interest rate is 5 percent, what will be the equilibrium interest rate if the money…
A:
Q: To concede that there is a minimum level which interest rates cannot fall below is a notion brought…
A: The Zero Lower Bound theory, is a theory which says that the nominal interest rates cannot fall…
Q: If the government increases government spending (G) and at the same time the Fed conducts open…
A: Answer: Correct option: (c) be ambiguous Explanation: If the government increases spending then the…
Q: When consumers and businesses have greater confidence that they will be able to repay loans in the…
A: The rate of interest is the main reason that determines the quantity of savings and investment in…
Q: What happens to the money supply when the Fed buys government bonds? According to the theory of…
A: MONEY SUPPLY Money supply refers to the volume of currency regulated in the economy during a period…
Q: In case government increases taxes and government spending by equal amount, what is the impact of…
A: This multiplier calculates the impact on GDP of increasing both government expenditure and taxes at…
Q: borrowing in a market for loans to purchase homes, measured in millions of dollars, at various…
A: Market is at equilibrium where demand for loan and supply of loan equal at certain interest rate…
Q: Assume that the money demand function is (M / P) ^ d = 2, 200 - 200r , where r is the interest rate…
A: MPd=2200-200rwhere;M= money supplyP= price levelr=Interest rate in precentConsumption function;…
Q: Suppose that for each one-percentage-point increase in the interest rate, the level of investment…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: From our discussion of interest rate frameworks, we can guess that the demand for liquidity is…
A: Liquidity refers to the flow of money into the economy which increased when the banks lower the rate…
Q: Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes…
A: Taxes are the monetary value that is deducted by the government from the incomes of the people.
Q: The liquidity trap occurs when the demand for money: Group of answer choices means that an increase…
A: Answer: Correct option: c (is perfectly interest elastic) Explanation: The liquidity trap refers to…
Q: Analyze what will happen to the equilibrium interest rate when discount rate increases and the level…
A: Bank rate is also known as the Discount rate is the rate at which commercial banks take money from…
Q: Identity the effect of on either demand or supply curve and the equilibrium interest rates on:-…
A: In an economy, any change in economic variables have a direct impact on demand or supply of output,…
Q: Practice Use a money demand and supply diagram to show and explain what will happen to interest rate…
A: The money demand curve shows the inverse relationship between the interest rate and the quantity of…
Q: If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will…
A: Introduction Output gap positive and negative both are not good for economy. Positive output gap…
Q: Which of the following refers to the federal funds rate (FFR) (choose one)? A. Interest rate on a…
A: The central bank of a nation is considered to be the backbone of the financial sector of every…
Q: Suppose the lowest level of the output gap during the Great Recession was -6 percent in July 2009.…
A: Given information Output Gap=6% Multiplier value=1.8 Monetary policy is constant and not used to…
Q: If the equilibrium price of bonds increases, what happens to the associated interest rate?
A: In a bond market, the price and interest rate are inversely related.
Q: Q.1.The ________ demand for money arises out of the need to hold money as a medium of exchange. This…
A: NOTE: Money is a medium of exchange, store of value and unit of account.
Q: Describe the policy mix that would result in each of the following situations. a. The interest rate…
A: The central bank is the apex monetary authority in the economy. The fed is the central bank for the…
Q: IS curve shows: (a) that realized savings are most likely a function of interest rates, because…
A: IS is negative sloping curve that shows inverse relationship between interest rate and income/output…
Q: When government spending results in higher interest rates due to rising debt, what happens to…
A: The Gross Domestic Product (GDP) refers to the market value of all the final goods and services…
Q: Why has the FOMC maintained federal funds rate at their current level of 0 - 0.25% in its recent…
A: The Federal Open Market Committee (FOMC) sets the target interest rate at which commercial banks…
Q: The Fed can directly affect long-term interest rate by setting the policy rate target range. True or…
A: In the United States, Federal Reserve is the highest monetary authority to make decisions related…
Q: If life expectancy rises because people begin to eat food containing fewer preservatives and…
A: Life expectancy is the average time a living being is relied upon to live, in light of the time of…
Q: Describe the policy mix that would result in each of the follow- ing situations. a. The interest…
A: “Since you have posted a question with multiple sub-parts, we will solve first three subparts for…
Q: Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75…
A: Monetary Policy is referred to the actions taken by the Central Bank of a country to control the…
Q: Which of the following statements is consistent with a given (i.e., fixed) IS curve? Select one: a.…
A: * ANSWER :- *(8) * The OPTION B (a reduction in the interest rate causes investment spending to…
Q: Malaysia to Hold Rate as Virus Uncertainty Looms: Decision Guide Malaysia will likely keep its…
A: Central bank is a financial institution that is the sole producer and distributor of money in an…
Q: In the liquidity-preference theory of interest, the quantity of money demanded for specultative…
A: liquidity preference theory of interest shows that money is demanded in an economy to fulfill three…
Q: By using graphs, show and explain each of the following events as either leading to an increase or a…
A:
Q: Which of the following statements is consistent with a given (i.e., fixed) LM curve? Select one: a.…
A: The LM curve represents the equilibrium in the money market where money demand equals the money…
Q: The only one interest rate in the economy the Fed can control directly is the FFR. True False
A: Federal Fund Rates (FFR): It is the interests that the commercial banks charges to lend and borrow…
Q: Group of answer choices A) A situation in which business investment is negatively related to the…
A: When investment spending is not responding to decrease in interest rate, then it means that there is…
Q: show that the friedman money equation is simply an extension of the general theory of demand for…
A: The Traditional QTM was having the effect of The Great Depression. The Theories were of the…
Q: A central bank that increases the money supply in its economy has more effect on spending the more…
A: The total volume of money that is being held by the public at a particular point of time in the…
Q: Consider the following two equations, which describe the long-run investment and national savings…
A: Given: I=0.03Y-137i+243 NS = 0.07Y +363 i -5189 Potential GDP (Y*) = $135,000
Suppose the law changes and the corporate income tax rate has been cut in half. As a result, corporations decide to purchase new buildings and equipment. As a result we can expect a shift in the [ Select ]
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Suppose there is an increase in money demand because of a stock market boom that raises people’s wealth. Draw the money market model to show the stock market boom impact on the interest rate. Will investment and consumption increase or decrease because of this event? What should Fed do if it wants to maintain the original interest rate? Show the impact of the Fed’s action in the graph of part a. Will investment and consumption still change if the Fed takes its action?Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by ______the ________. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is__________money in the financial system, there is an excess _________ money at the initial equilibrium interest rate. Individuals and businesses adjust their asset portfolios by _______bonds. As a result, the price of bonds_________ , and the interest rate______ . This process continues until the new equilibrium interest rate is achieved.Suppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary monetary policy, interest rates will likely Multiple Choice rise causing investment to increase. fall causing investment to increase. fall causing investment to decrease. rise causing investment to decrease.
- Changes in the money supply affect the interest rate through changes in the supply of loans, real GDP, the price level, and the expected inflation rate. True or False: The price-level effect describes the change in the interest rate due to a change in the expected inflation rate. False INTEREST RATE True The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the expected inflation rate. Show the effect of this increase by dragging one or both curves on the graph. SLE QUANTITY OF LOANABLE FUNDS The income effect DLF The liquidity effect The expectations effect PLF SLF Which of the following refer to changes that affect the demand for loanable funds but not the supply? Check all that apply. The price-level effect (?Use the information in the following table to answer the next question. In the table, investment is in billions. (1) Interest Rate (2) Investment (billions of dollars) (3) Investment (billions of dollars) 4% $100 $80 5 90 70 6 80 60 7 70 50 8 60 40 Suppose the Fed increases the interest rate from 5 percent to 6 percent. As a result of this increase in the interest rate, using column (2) investment will Multiple Choice increase by $20 billion. decrease by $10 billion. increase by $10 billion. decrease by $20 billion.Assume that the money demand function is (M / P) ^ d = 2, 200 - 200r , where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The consumption function is given by C = 200 + 0.5(Y - T) and the investment function is I = 1.000 - 200r , where r is measured in percent , G equals 300, and T equals 200. a) What is the equilibrium level of interest rate determined at the money market?
- Are the inventories typically the least liquid of a firm 's current assets? How?In class we assumed that money demand depends upon income, Md = L(Y, i). However, if people hold money as a medium of exchange it may be that money demand really should depend upon consumption, Md = L(C, i). In other words, if people consume more, they will also want to hold more money. Suppose that consumption, as usual, depends upon disposable income, C = C(Y – T). Money demand will then also, indirectly, depend upon disposable income, Md = L[C(y - T), i]. True or False: In this case, a tax cut will always increase in the short runIn 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a)First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b)Draw an IS-MP diagram that’s consistent with the state of the U.S. economy in 2009. Make sure that your IS and MP curves intersect in a place that is consistent with the setup of the problem, above. In particular, do your IS and MP curves intersect on the flat part of the MP curve, or the upward-sloping part? And do your IS and MP curves intersect at a positive real interest rate or a negative real interest rate? c)Suppose that the U.S. Congress and President pass a fiscal stimulus package that increases government spending.…
- Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.Assume that the equilibrium in the money market may be described as M/P = 0.5Y – 100r, and M/P equals 800. Calculate the equilibrium r and Y. Calculate the government spending multiplier.In case government increases taxes and government spending by equal amount, what is the impact of this policy on interest rate and output.Assume the economy starts at full-employment. There is a global pandemic. Which of the following will happen as a result of the pandemic (only the pandemic): Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a interest rates increase, aggregate expenditures decrease, prices decrease and output decreases interest rates decrease, aggregate expenditures increase, prices increase and output decreases C interest rates do not initially change, aggregate expenditures decrease, prices decrease and output decreases d interest rates do not initially change, aggregate expenditures increase, prices increase and output increases