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Assume the supply of money is fixed by the authorities.
(i) Draw the
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- A) What is the notable insight of the Quantity Theory of money? (a) An Increase in the quantity of money, ceteris paribus will result in inflation (b) A decrease in the quantity of money, ceteris paribus will result in inflation (c) An Increase in the quantity of goods and services, ceteris paribus will result in inflation (d) An Increase in the demand for money holding, ceteris paribus will result in inflation B) What is the primary purpose of the interest rate in Bagehot's rule? (a) To increase the revenue of the government (b) To decrease uncertainity (c) To eliminate moral hazard (d) To increase the revenue of the central bankThe following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). NOTE: Options for "Value of Money column" chart are as follows -->for price level 1.00 options for value of money are (0.50, 1.00, 2.00) -->for price level 1.33 options for value of money are (0.67, 0.75, 1.33, 2.66) -->for price level 2.00 options for value of money are (0.50, 1.00, 2.00, 4.00) -->for price level 4.00 options for value of money are (0.25, 2.00, 4.00, 8.00) NOTE: The lower the price level, the ______ (more or less) money the typical transaction requires, and the ______ (more or less) money people will wish to hold in the form of currency or demand deposits. NOTE: Create the graph as stated in problem NOTE: According to your graph, the equilibrium value of money is ______ (0.25 or 0.50 or 0.75 or 1.00), therefore the equilibrium price level is ______ (1.00 or 1.33 or 2.00 or 4.00) NOTE: In order to increase the money supply, the Bank of…Suppose that changes in the bank regulations expand the availability of credit cards so that people need to hold less cash. (i) Explain how does that affect the demand for money? (ii) If the Central Bank does not respond to this event, explain what will happen to the price?
- Suppose L= 100 1000R 20Y if R 0.09, Y = 488 Suppose Money supply increases to 213,688, calculate the new price of the market basket of goods> Supply of entral bank money 4 (If M₂=chechable deposits) People take their money from bank, (pc=1) HD (demand for central bank money) M₂= $Y((i) =D₂ What will be i? Pls also show from graph.Suppose that changes in the bank regulations expand the availability of credit cards so that people need to hold less cash.(i) How does that affect the demand for money? (ii) If the Central Bank does not respond to this event, what will happen to the pricelevel?
- d. Suppose that changes in the bank regulations expand the availability of credit cards so thatpeople need to hold less cash.(i) How does that affect the demand for money? (ii) If the Central Bank does not respond to this event, what will happen to the pricelevel?In the money market when the money supply is increased, the interest rate falls by ________ when the interaction of the money market with the goods market is taken into account. a)a smaller extent b)All of the other three choices are possible. c)the same extent d)a greater extentThe following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Quantity of Money Demanded (Billions of dollars) Price Level (P) Value of Money (1/P) 0.80 1.25 1.00 1.00 1.33 0.75 2.00 0.50 2.0 2.5 4.0 8.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less money required to complete transactions, and the less money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $4 billion. Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. 2.00 1.75 1.50 0.75 0.50 0.25 ཱ་ཎྜ་ཉ་མ་༅་གླུ་སྒྲ་སྐྱ VALUE OF MONEY 1.25 Money Demand ° 1 2 3 4 5 B 7 QUANTITY…
- Suppose that changes in the bank regulations expand the availability of credit cards so that people need to hold less cash. (i) How does that affect the demand for money? (ii) If the Central Bank does not respond to this event, what will happen to the price?The three main influences of money demand (MD; i.e., shift factors) include all of the following EXCEPT: O The price level O Real GDP O The nominal interest rate O Financial technology2. Graphically demonstrate how to construct an IS(LM) curve. 3. State the product market equilibrium condition, define an IS curve and explain why it is downward sloping. 4. State the money market equilibrium condition, define an LM curve and explain why it is upward sloping.