What is a tariff? • A limit imposed on the production or sale of a product. • A maximum or minimum price placed on a product by government regulation. A restriction placed on the importation of foreign products. A tax or duty levied on imports. . .
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- 1) Suppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (Qg = 75 and Qs = 300) and that the demands for gold and silver are given by the following equations: PG = 975 – QG + 0.5Ps and Ps = 600 – Qs + 0.5PG. What are the equilibrium prices of gold and silver?10. Which of the following would cause the Aggregate Quantity Demanded to increase? a) An increase in the price level causing an increase in the purchasing power of the consumer's wealth b) A decrease in the price level making domestic prices less expensive relative to foreign prices c) An increase in the price level causing an increase in the market rate of interest d) A decrease in the price level causing a decrease in the purchasing power of the consumers' wealth e) None of the aboveThe money market in the country of Everton is depicted in the graphs below (all figures are in billions of dollars). a) Suppose that the central bank of Everton wishes to implement a contractionary monetary policy and decreases the money supply by $50 billion. Draw the new money supply curve in the graph below. Plot only the endpoints of MS2 line in the graph below. Interest rate (%) 10 9 8 7 6 2 1 0 50 MS₁ 100 150 200 Quantity of money MD 250 300 Tools MS₂
- 2- money Supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price level (P). Fill in the value of Money column in the following table. Now consider the relationship between the price level and the quantity of money that people demand. The lower price, the (More/ Less) money the typical transaction requires, and the (More/ Less) 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 $4 Billion. Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. According to your graph, the equilibrium value of money is (0.25, 0.50, 0.75, 1.00) therefore the equilibrium price level is (1.00, 1.33, 2.00, 4.00). Now, suppose that the…2. Consider the money market model. If the current price is higher than the equilibrium price, would the money demand greater or smaller than the money supply? And how would the value of money will change in the adjustment toward the equilibrium? Decrease or Increase. Money demand(greater:smaller):Value of money (increase/decrease):The graph shows an economy's potential GDP and the aggregate supply curve. Draw an arrow that shows a rise in the price level when the money wage rate remains unchanged. Label it 1. Draw an arrow that shows a rise in the price level accompanied by the same percentage rise in the money wage rate and the money prices of other resources. Label it 2. What is the effect of an increase in the price level when the money wage rate remains unchanged? O A. Aggregate supply increases. O B. The quantity of real GDP supplied increases. Resource prices increase by the same percentage as the increase in the price level. O C. OD. Potential GDP increases. 145- 135- 125- 115- 105- 95- Price level (GDP price index, 2012=100) 85+ 18.0 Potential GDP A$ 22.0 Q 19.0 20.0 21.0 Real GDP (trillions of 2012 dollars) >>> Draw only the objects specified in the question.
- 1) Which of the following actions can the Federal Reserve take to reduce inflationary pressures in the United States? Printing more money Imposing import quotas Borrowing from the public 2) Which of the following is the most likely effect of a large decrease in total demand for goods and services? Inflation will increase and unemployment will decrease. Inflation will decrease and unemployment will decrease. Inflation will decrease and unemployment will increase. Inflation will increase and unemployment will increase. Expanding public-works projects7. What is the interest rate effect that explains why the aggregate demand curve slopes downward? A) It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. B) It refers to the effect of interest rates on borrowing which in turn affects consumption spending. C) It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. D) It refers to the shifts in aggregate demand when interest rates change. 8. All other things unchanged, a higher exchange rate A) reduces net exports and aggregate demand. B) reduces net exports and increases aggregate demand. C) increases net exports and aggregate demand. D) increases net exports and reduces aggregate demand. 9. Suppose investment rises by $50 billion at each price level. If the value of the multiplier…2. Money supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (PP). Fill in the Value of Money column in the following table. Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the ____ (more/less) money the typical transaction requires, and the _____ (more/less) 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 $2.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS1MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. According to your graph, the equilibrium value of money is ______ , therefore the equilibrium price level is _____ Now, suppose that the Fed…
- 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…Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 102. Suppose that money demand is given by M' =$Y(0.25 – i), where SY is 100. Also, suppose that the supply of money is $20. The equilibrium interest rate is _ If the central bank wants to increase i by 10 percentage points (e.g. from 2% to 12%, the actual interest rate depends on result you calculate), it should set the supply of money at