The 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, 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 6 6 3 2 1 0 0 50 100 150 200 250 300 350 400 QUANTITY (Billions of dollars) 450 500 MS Money Demand Equilibrium Equilibrium2 Before the Fed increased the money supply, the equilibrium interest rate was %. The Fed increased the money supply by $200 billion. This results in excess money in the system, so people rate in the economy The new equilibrium rate of interest is now bonds. Because of this, the interest %.
The 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, 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 6 6 3 2 1 0 0 50 100 150 200 250 300 350 400 QUANTITY (Billions of dollars) 450 500 MS Money Demand Equilibrium Equilibrium2 Before the Fed increased the money supply, the equilibrium interest rate was %. The Fed increased the money supply by $200 billion. This results in excess money in the system, so people rate in the economy The new equilibrium rate of interest is now bonds. Because of this, the interest %.
Chapter15: Monetary Theory And Policy
Section: Chapter Questions
Problem 1.2P
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Transcribed Image Text:The 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,
Transcribed Image Text: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
6
6
3
2
1
0
0
50
100 150 200 250 300 350 400
QUANTITY (Billions of dollars)
450 500
MS
Money Demand
Equilibrium
Equilibrium2
Before the Fed increased the money supply, the equilibrium interest rate was
%.
The Fed increased the money supply by $200 billion. This results in excess money in the system, so people
rate in the economy
The new equilibrium rate of interest is now
bonds. Because of this, the interest
%.
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