24. If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _____ in investment and a(n) _____ in consumer spending. increase; decrease decrease; increase increase; increase decrease; decrease 26. Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect: the demand curve for money to shift outward. a downward movement along a fixed money demand curve. the demand curve for money to shift inward. an upward movement along a fixed money demand curve.

24. If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _ in investment and a(n) _ in consumer spending. increase; decrease decrease; increase increase; increase decrease; decrease 26. Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect: the demand curve for money to shift outward. a downward movement along a fixed money demand curve. the demand curve for money to shift inward. an upward movement along a fixed money demand curve.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section: Chapter Questions

Problem 1SQP

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Q.1.6 Which of the following will cause the demand curve for money to shift to theright?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.
Q.1.5 Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Q.1.6 Which of the following will cause the demand curve for money to shift to theright?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.
5. Fiscal policy, the money market, and aggregate demand 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 $3.5 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. 116 114 AD, 112 AD, 110 AD, 108 106 104 102 100 100 102 104 106 108 110 112 114 116 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $30 billion. PRICE LEVEL
Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Q.1.6 Which of the following will cause the demand curve for money to shift to the right?(a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.
9) Consider a credit boom where bank lending increases a) What is likely to happen to the money supply? Explain. b) Explain whether such a boom would more likely be inflationary or deflationary. c) Given your answer from (b), would borrowers or lenders more likely benefit?
8. The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier A lower reserve requirement is associated with a Money Supply ollars) money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to worth $ of U.S. government…
6) State how each of the following would affect the quantity of money demanded. Does the change cause a movement along the money demand curve or a shift of the money demand curve (state the direction of the shift or movement)? a) Interest rates rises from 5% to 8%. b) The consumer price index (CPI) rises in the economy.
Which of the following will cause the demand curve for money to shift to the right? (a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.
Draw a demand for money curve. Label it MDo- Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD,. Interest rate (percent per year) 8- Draw a demand for money curve that shows the effect of new financial technology that decreases the demand for money and that follows the decrease in real GDP. Label it MD,. What is the effect in the money market of a decrease in real GDP? 6- When real GDP decreases, A. there is a decrease in the quantity of money demanded. The opportunity cost of money increases B. there is an increase in the quantity of money demanded. The opportunity cost of money decreases O C. the quantity of money decreases O D. a decrease in the demand for money occurs 2- 2.6 2.8 3.0 3.2 3.4 Real money (trillions of 2005 dollars) >>> Draw only the objects specified in the question. Click the graph, choose a tool in the palette and follow the instructions to create your graph. DII F10 20 888 F9 F7 F8 F6 F5 F4 F3 esc F2 F1 $ % ! 8. 4 1 Y R Q W…
2. What is normal goods? What is ordinary goods? Please indicate whether normal money must be ordinary money.
Assume that the following data characterize a hypothetical economy: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate.a. What is the equilibrium interest rate? Explain.b. At the equilibrium interest rate, what are the quantity of money supplied, the total quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset?
23. What is an implication of the neutrality of money in the long run? The economy's level of potential output will adjust to accommodate any change in the money supply. Changes to the money supply have no effect on either the price level or real GDP. In response to any change in the money supply, the demand for money will adjust to cancel out its effects on all macroeconomic variables. Changes to the money supply never have any effect on real GDP. In response to any change in the money supply, the economy's adjustment process will bring Y back to Y*, which is unaffected by the change in the money supply.