Suppose the current economy requires $7 million for transactions. The table below shows the interest rate and asset dema Asset Demand (in millions of Dollars) $3 $6 $9 Interest Rate (%) 12% 10% 8% 6% 4% 2% $12 $15 $18 What is the total transaction demand when the interest rate is 4 percent?
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- Interest Rate (%) 2004 0 $75 150 225 Investment ($) Price Level Interest Rate (%) AS Q₁ Real GDP X Investment Demand 0 $50 100 150 Investment ($) -AD₂ (/=$100) AD3 (/=$50) Z AD₁ (/=$150) O Increase the money supply from $75 to $150 billion. O Increase the money supply from $150 to $225 billion. O Decrease the money supply from $225 to $150 billion. O Make no change in the money supply. Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 12 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Qf)?E7% B A C 5% - M 100 150 200 300 Money ($ million) 25) Refer to Figure 11.1. Suppose the Quantity of money demanded is currently at Point A. increase money Demand could be caused by: A) a decrease in the interest rate. C) an increase in income. B) a decrease in income. D) an increase in the interest rate. Interest rate (%)Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan If: The borrower has been late on a number of loan payments Interest rates In the economy as a whole have risen since the bank made the loan The borrower Is a firm that has just declared a high level of profits Interest rates in the economy as a whole have fallen since the bank made the loan
- Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 1007. Changes in quantity supplied and quantity demanded Which of the following causes a change in the quantity of bonds supplied? O A change in bond prices O A change in business expectations O An unexpected change in the inflation rate A change in the quantity demanded of bonds Suppose bond prices have decreased. Adjust the following graph to illustrate the change in the quantity demanded of bonds. PRICE QUANTITY Supply Demand 。』」。 Demand Ic SupplyExercise 2 Suppose that money demand is given by MD= $Y(0.25 – i) where $Y is $100. Also, suppose that the supply of money is $20. a. What is the equilibrium interest rate? b. If the Federal Reserve Bank in the USA wants to increase i by 10 percentage points, at what level should it set the supply of money?
- What is meant by "demand deposits"? O a) Bank accounts where you can't withdraw money by writing a check, but can withdraw the money at a bank-or can transfer it easily to a checking account. O b) An institution that operates between a saver with financial assets to invest and an entity who will receive those assets and pay a rate of return. c) Deposits in banks that are available by making a cash withdrawal or writing a check. C PRECEDENS 22 d) A bank's liabilities can be withdrawn in the short term while its assets are repaid in the long term.How do higher commissions on bonds affect interest rates? O Increase interest rates. Unrelated to interest rates. O Decrease interest rates.Q1.Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $5 million more supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain the situation: the reasons of increase of supply and what new equilibrium mean Interest rate Qs Qd 5 200 470 6 270 320 7 300 300 8 350 250 9 400 200 10 500 100
- Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Which curve will shift: supply or demand? In which direction will the curve shift: right or left? (It may help to use a demand and supply diagram to conduct your analysis.) a. The number of people at the most common ages for home-buying decreases. b. Rents rise extremely rapidly. c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans. d. Because of a threat of a war, people become uncertain about their economic future.The overall level of saving in the economy diminishes. e. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by: M = $60,000(0.40 – i) Calculate the demand function for bonds, B. B = Suppose the interest rate increases by 10 percentage points. As a result, the demand for bonds O A. remains unchanged. OB. decreases by 30%. O C. increases by $6,000. O D. decreases by $6,000. In view of the above demand functions for money and bonds, one can conclude that an increase in wealth increases O A. both the demand for money and the demand for bonds. O B. the demand for bonds but has no effect on the demand for money. O C. the demand for money but has no effect on the demand for bonds. O D. the demand for bonds but decreases the demand for money.Interest rate 2% 4 6 8 10 Transaction demand for money $220 220 220 220 220 Asset demand B) horizontal line. C) line sloping downward and to the right. D) line sloping upward and to the right. for money $300 280 260 240 220 Money supply $460 460 460 460 460 1. The transactions demand for money in the above market for money would graph as a: A) vertical line.
