8. A reduction in the marginal propensity to consume will cause an increase in the multiplier. 9. The money demand curve will shift to the right when a reduction in the interest rate will occur. 10. If the nominal interest rate 4% and expected inflation 4%, the expected real interest rate in year t is approximately 0%

8. A reduction in the marginal propensity to consume will cause an increase in the multiplier. 9. The money demand curve will shift to the right when a reduction in the interest rate will occur. 10. If the nominal interest rate 4% and expected inflation 4%, the expected real interest rate in year t is approximately 0%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Interest Rate 29 S 0 I M₂ Ms Ea Mo Quantity of Money M₁ FIGURE 28-2 2 Refer to Figure 28-2. Starting at equilibrium Eo, an increase in real GDP will lead to downward movement along the MD curve and a lower interest rate. shift of the MD curve to the left and a fall in the interest rate. shift of the shift of the shift of the Mg curve to the left and an increase in the interest rate. Ms curve to the right and a fall in the interest rate. MD curve to the right and an increase in the interest rate.
12. Suppose that the money demand function is: d = 900 - 60i where r is the interest rate in percent. The money supply M is 3,000 and the price level P is fixed at 6. (optional) a. Graph the supply and demand for real money balances. Make sure to label all curves and axes. b. What is the equilibrium interest rate? What happens to the equilibrium interest rate if the supply of money is reduced from 3,000 to 2,400? Show your work. a. If the central bank wants the interest rate to be 3 percent, what money supply should it set? Show your work.
51) What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public? 52) Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall. 5.4 Supply and Demand in the Market for Money: The Liquidity Preference Framework 1) In Keynes's liquidity preference framework, individuals are assumed to hold their wealth intwo forms: A) real assets and financial assets. B) stocks and bonds. C) money and bonds. D) money and gold. 2) In Keynes's liquidity preference framework, A) the demand for bonds must equal the supply of money. B) the demand for money must equal the supply of bonds. C) an excess demand of bonds implies an excess demand for money. D) an excess supply of bonds implies an excess demand for money. 3) In Keynes's liquidity preference framework, if there is excess demand for money, there is…
When the growth rate of the money supply is decreased, interest rates wil rise immediately if the liquidity effect is ____ than the other money supply effects and there is ______ adjustment of expected inflation. larger; fast smaller; slow larger; slow smaller; fast
Now, consider an economy in which the demand for money is of the formY / (1 + it) for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A . Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1 / P1 and, E1π2. B . Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period 2, π2, i2, M2 / P2 and E2π3. C . Compare E1π2 and π2.
An increase in the expected rate of inflation will the expected return on bonds relative to the that on real assets, and shift the curve to the .
13) The aggregate demand curve shows a(n). relationship between the A) positive; interest rate and planned investment B) negative; interest rate and planned investment C) negative; interest rate and money demand D) inverse; price level and aggregate output
The Federal Funds Rate is: A. A short-term nominal interest rate B. A short-term real interest rate C. A long-term nominal interest rate D. A long-term real interest rate
What happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not change
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will always lower long-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2. By what percentage does real money demand change in each of the following circumstances? a. Income rises 2%. b. The interest rate rises from 4% to 5%. c. Income falls 4%. d. The interest rate falls from 6% to 4%.
Q#2: (i) Find the level of income Y and the rate of interest i that simultaneously bring equilibrium to the economy and estimate the level of consumption C, investment I, the speculative demand for money Mw and the transaction-precautionary demand for money Mt,when (5) (a) the money supply M,= 1000, С 950 + 0.75Y, I 310 - 125i, S = 264 – 175i, and M, M, 0.15Y, and W (b) М, 800,C = 1200+ 0.6Y,I = 227 – 180i, MW = 127 – 180i, and M² || %D S 0.2Y. ||