Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $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.
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- In the graph below (the market for money), the Rate of interest price of a dollar 12 10 8 4 2 50 ✔interest rate ✔price of borrowing or lending money O purchasing power S 100 250 Quantity of money demanded & supplied (billions of dollars) 150 is determined by the total demand for money intersecting with the total supply of money. 200 DThe following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded (Billions of dollars) 1.5 Price Level (P) Value of Money (1/P) 1.00 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 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.The figure shows the demand for money curve in Epsilon. The Fed wants the interest rate to be 6 percent a year. If the interest rate is 5 percent a year, do people buy or sell bonds? Question Help Does the price of a bond rise or fall? Does the interest rate rise or fall? Interest rate (percent per year) 7- Draw the supply of money curve if the Fed wants the interest rate to be 6 percent a year. Label it. Draw a point at the equilibrium in the money market. 6- If the interest rate is 5 percent, people will bonds. 5- Bond prices and the interest rate will O A. fall; fall 4- B. rise; fall C. rise; rise MD O D. fall; rise 3+ 2.8 2.9 3.0 3.1 3.2 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 888 F12 F10 F11 F7 F8 F9 F5 F6 esc F2 F4 F3 F1 & # ! delete %3D 4 5 6 7 8 1 P T Y Q W tab J K F A caps lock M C V shift option command command option fn…
- The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 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.The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 2.0 1.33 2.5 2.00 4.0 4.00 8.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $4 billion.According to your graph, the equilibrium value of money is , therefore the equilibrium price level is Now, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion. In order to reduce the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply (MS2 ). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This contraction in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will
- The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent) 6.0 5.5 Money Demand 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Money Supply 0.6 0.7 0.8 0.9 1.0 1.1 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 New Curve New Equilibrium ? the Suppose the Federal Reserve (the Fed) announces that it is raising its target interest rate by 50 basis points, or 0.50%. It would achieve this by . Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of money demanded which means that bond issuers sell bonds. This process continues until the…5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 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 agregate demand curve (AD,) is parallel to AD. You can see the slope of AD by selecting it on the following graph. (? 116 114 AD, 112 AD 110 AD 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 1.5% and quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 3.0…The 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. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Quantity of Money Demanded (Billions of dollars) 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 required to complete transactions, and the 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 $2.5 billion. money Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
- What happens to the interest rates on bonds during recessions. I am confused becaus During an economic downturn,income and wealth are falling and thus the demand for bonds fall at every price level– the demand curve shifts to the left. Does this decrease the price of bonds meaning higher interest rates? Or an alternartive explanation: In recessions the government tends to cut interest rates in order to stimulate economic activity by creating incentive for banks to lower their rates on loans to consumers and firms, encouraging consumption and investment. This can lead to the interest rates on assets falling. Bonds are often a safe haven during recessionary periods because they offer a fixed income stream in times of uncertainty, and thus they may be favoured to other types of assets invesmtents increasing demand for bonds. The increase in demand Increases price of bonds thus decreases interest rates. or in terms of supply: the supply of bonds may fall because there is less incentive to…The 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. Price Level (P) Value of Money (1/P) 1.00 1.33 2.00 4.00 Quantity of Money Demanded (Billions of dollars) 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 required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. 1.25 Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 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. (?) moneyAlyssa spends all of her money on comic books and mandarins. In 2014, she earned $27.00 per hour, the price of a comic book was $9.00, and the price of a mandarin was $3.00. Suppose that the Fed sharply increases the money supply between 2014 and 2019. In 2019, Alyssa's wage has risen to $54.00 per hour. The price of a comic book is $18.00 and the price of a mandarin is $6.00.