oney supply grows at a rate of / > 0 initially. At some later time, an immediate decrease in the rate of growth of money supply is announced. In other words, the money supply will grow at a lower rate p' < u. After that, a one-time increase in the money supply is announced
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Assume the money supply grows at a rate of / > 0 initially. At some later time, an immediate decrease in the rate of growth of money supply is announced. In other words, the money supply will grow at a lower rate p' < u. After that, a one-time increase in the money supply is announced. Mark ALL the CORRECT graphs.
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- 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.10) Which of the following sequence of events follows a fall in money demand? A) rį =K = AD =}. C) ↑ =14 = ADĮ = Yņ. B) ↑ = =AD↑ = Y. D) rl =14 = ADĮ = Y†.8) Assume that the economy is initially operating at the natural level of output. A one-time 4% reduction in the nominal money supply will cause: A) a 4% increase in the price level in the medium run. B) a 4% reduction in the price level in the medium run. C) a 4% increase in the real money supply in the medium run. D) a 4% increase in the interest rate (i) in the medium run. E) a 4% reduction in investment in the medium run.
- Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?When the money market is drawn with the value of money on the vertical axis, in which situation does the price level increase? a.if either money demand or money supply shifts right b.if money demand shifts left or money supply shifts right c.if money demand shifts right or money supply shifts left d.if either money demand or money supply shifts left correct and incorrect answer explanation Note:- Please refrain from offering handwritten solutions. Please ensure that your response maintains accuracy and quality to avoid receiving a downvote. Take care of plagiarism. Answer completely. You will get up vote for sure.Price stability: Suppose you are the head of the central bank and your mandateis to maintain the price level at a constant value. Explain what you would doto the money supply in response to each of the following events:(a) Real GDP increases by 4% during a boom.(b) Real GDP declines by 1% during a recession.(c) Real GDP is growing at 3% per year.(d) Te velocity of money increases by 2%.(e) Te velocity of money declines by 1%.
- (b) List one assumption of the quantity theory of money. Based on the simple quantity theory of money, what would be the impact on the economy of increasing the money supply by 5%?The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has established a 5% target for the federal funds rate. a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to increase. Show this change in the demand for reserves in the federal funds market. Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total). Federal Funds Market Federal Funds Rate (percent) 10 20 30 40 50 60 70 80 90 100 Tools DH1 0 F 4 b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of reserves will increase to meet the change in reserve demand.Q-3. (B). Evaluate the policy options open to a government when the Government wants to close a deflationary gap (negative output gap) and reduce unemployment Q-3. (A). I deposited Rs. 3 million of my money in a Habib Bank Limited, State Bank of Pakistan: Required rate of reserve ratio (RRR): Weekly Average Demand Liability was set as 10.0 % in June 2020. You are required to calculate the change in the money supply in the economy. If RRR decreased to 5% in August 2020, what will happen with the same deposit of Rs. 3 million. You are also required to compare and discuss it in few lines. Q-2. (B). The labor force in Pakistan is 15,000,000 and the number of employed is 12,000,000. Calculate the number of unemployed and the unemployment rate. Also discuss it in few lines by comparing it with NRU (natural rate of unemployment 5%).
- 1.D Assume the money supply grows at a rate of µ> 0 initially. At some time later, an immediate increase in the rate of growth of money supply is announced. In other words, the money supply will grow at a higher rate ' > . After that, a one time increase in the money supply is announced. Mark ALL the CORRECT graphs. a) d)Task 3 Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) I = 400 – 15r M = 200 + Y – 100r P G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output. c) The government reduces taxation to T=50 in order to boost economic activity. Assume no changes in the values of all the other variables. 1. What is the immediate increase in income before the…(a). Which of the following assumptions is necessary for the money multiplier (m) to be used in the equation D=E×m (where D stands for the maximum checkable-deposit creation and E is the initial change in excess reserves)? A. People's marginal propensity to consume does not rise with income. B. Borrowers use the entire loan amount to pay others, who will deposit all of the funds in a checking account. C. Borrower default rates are stable. (b). If the above assumption did not hold, the change in the money supply would be ____ (less or more) than you found because: A. If people kept some of the new money as cash rather than depositing it in another checking account, this cash could not, in turn, become a bank loan. B. If people's marginal propensity to consume rose with income, they would save less, removing money from the financial system. C. If borrower default rates were not stable, then the money creation process would be disrupted.