The economy is currently at the potential level of GDP when the Bank of Canada announces that they will decrease the nominal money supply, which will cause the following sequence of events to occur: The money supply curve will Select ] .As the equilibrium interest rate [ Select ] money demand will [Select ] * (illustrated as
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- Refer to the figure that shows the money demand and supply and investment demand curves. Mp Mso Ms1 Eo M, Mo Quantity of Money (i) Money demand and supply Investment Expenditure (ii) Investment demand Part (i) of the figure shows the money market and the effect of an increase in the supply of money. The corresponding sequence of events in of money at i , leads firms and households to the bond market is as follows: The bonds, which leads to a(n) il the price of bonds and a decrease in the interest rate. O A. excess demand; sell; increase O B. excess demand; sell; decrease O C. excess supply; buy; decrease O D. excess supply; buy; increase Refer to the money demand curve. Given the money demand curve, Mp, an increase in the quantity of money demanded from M, to M, can be caused by O A. an increase in the price level. O B. an increase in the rate of interest. C. a decrease in the price level. O D. a decrease in the rate of interest. 1 * Mp Mo M, Quantity of Money Interest Rate Interest…“If f increases, then the Fed can keep output constantby reducing the real interest rate by the same amount asthe increase in financial frictions.” Is this statement true,false, or uncertain? Explain your answer.Assume that the consumption function is giv 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.What is the numerical formula for the IS curve?What is the slope of the IS curve? What is the numerical formula for the LM curve? Calculate the equilibrium r and Y. Calculate the government spending multiplier. en by C = 200 + 0.5(Y – T) and the investmentfunction 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.What is the numerical formula for the IS curve?What is the slope of the IS curve? What is the numerical formula for the LM curve? Calculate the equilibrium r and Y. Calculate the government spending…
- An important way in which the Federal Reservedecreases the money supply is by selling bonds to thepublic. Using a supply and demand analysis for bonds,show what effect this action has on interest rates. Isyour answer consistent with what you would expect tofind with the liquidity preference framework?“If the demand for reserves did not fluctuate, the Fedcould pursue both a reserves target and an interest-ratetarget at the same time.” Is this statement true, false, oruncertain? Explain.Suppose that the reserve requirement for chequing deposits is 15 % and the banks donot hold any excess reserves. What is the effect on the economy’s reserves and themoney multiplier if the central bank sells $2 million of government bonds?
- Consider an economy with a constant nominal money supply, a constant level of real outout Y= 400, and a constant real interest rate r 10%. Suppose that the income elasticity of money demand is 1.20 and the interest elasticity of money demand is-0.10. a. By what percentage does the equilibrium price level differ from its initial value if output increases to Y 480.00 (and rremaine at 10%)? %AP= (enter your result as a percentage rounded to two decimal places). b. By what percentage does the equilibrium price level differ from its initial value if the real interest increases to r-12.50% (and Y remaina at 400)? %AP (enter your result as a percentage rounded to two decimal placea). c. Suppose that the real interest rate inoreases to re 12.50%. By what percentage would real output have to increase for the equilibrium price level to remain at its initial value? %AY- T(enter your reault an a percentage rounded to two decimal places)For the economy described below: C = 2,800+ 0.5(YT) - 8,000r 8,000r IP = 2,000 G = 2,500 NX-0 T = 3,600 a. Suppose that potential output Y* equals 9,080. What real interest rate should the Fed set to bring the economy to full employment? You may take as a given that the multiplier for this economy is 2. Instructions: Enter all your responses as whole numbers. Real rate of interest: % b. Suppose that potential output Y' equals 7,800. What real interest rate should the Fed set to bring the economy to full employment? You may take as given that the multiplier for this economy is 2. Real rate of interest: % c. Show that the real interest rate determined in part a sets national saving equal to planned investment when the economy is at potential output. This result shows that the real interest rate must be consistent with equilibrium in the market for saving when the economy is at full employment. Planned investment P= National saving S=Suppose that the current money market equilibrium features an interest rate of 5 percent anda quantity of $2 trillion. If the Fed raises the discount rate, which of the following is mostlikely to be the new money market equilibrium? Group of answer choices An interest rate of 4 percent and a quantity of $2.5 trillion. An interest rate of 6 percent and a quantity of $1.5 trillion. An interest rate of 3 percent and a quantity of $3 trillion. An interest rate of 5 percent and a quantity of $2 trillio
- Which statement is true? O An increase in the tax on interest rate income increases the supply of loanable funds and increases the equilibrium investment. O A recessionary gap means that the level of real GDP at the short-run macroeconomic equilibrium is larger than the full-employment GDP. Monetary policy is preferred to fiscal policy because the use of fiscal policy is limited due to the time lags associated with a fiscal policy that may cause the policy to take effect too late to solve the problem it was supposed to address. O If the crowding out effect existed, the effects of fiscal policy could be larger. Expansionary monetary policy occurs when____ O a central bank acts to decrease the money supply in an effort to stimulate the economy. O Congress and the president decrease taxes in an effort to stimulate the economy. • a central bank acts to increase the money supply in an effort to stimulate the economy. O A central bank acts to increase government spending in an effort to…What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change. Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level. The text notes that a 10% increase in the money supply may not increase the price level by 10% in the short run. Explain why. Suppose the Central bank were required to conduct monetary policy so as to hold the unemployment rate below 4%. What implications would this have for the economy?