Following the price level decrease, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of than the quantity of money ▼ their money holdings. In order to do so, they will interest rates until equilibrium is

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Suppose the current economy requires $6 million for transactions. The table below shows the interest rate and asset demand.   Interest Rate Asset Demand (in millions) 12% $4 10 8 8 12 6 16 4 20 2 24   What is the total asset demand when the interest rate is 6 percent?     Multiple Choice   $40 million   $16 million   $22 million   $6 million

Q3. Suppose that the money demand function is given by: Md=$Y (.25-i), where $Y is $100. (a) Derive the bond demand function (B) assuming that wealth is $50. (b) Calculate Md and Bd at interest rates of 5% (use .05) and 10% (use .10). SHOW WORK. (c) How does an increase in the interest rate affect the amount of money people are willing to hold, according to your calculations? How does an increase in the interest rate affect the quantity of bonds people are willing to hold? (d) Suppose the supply of money is currently $20.. Show that the equilibrium interest rate is 5% (.05). (e) Suppose the central bank wants the equilibrium interest rate to rise to 15% (.15). At what level should it set monetary policy? SHOW WORK. What kind of monetary policy (expansionary or contractionary) does this imply?

Suppose you purchase a $1,500 TIPS on January 1, 2020. The bond carries a fixed coupon rate of 5.5 percent. Over the first two years, semiannual inflation is 1.5 percent, 1.5 percent, 4 percent, and 3 percent, respectively. What is the principal at the end of month 6?

When consumers and businesses have greater confidence that they will be able to repay loans in the future: The quantity supplied of financial capital at any given interest rate will shift to the right The quantity demanded of financial capital at any given interest rate will shift to the right The quantity demanded of financial capital at any given interest rate will shift to the left The quantity supplied of financial capital at any given interest rate will shift to the left

Consider a small macroeconomy located near the South Pacific Ocean where the current interest rate is 15 percent and the potential level of real GDP equal to $2.7 billion. Consumers spending behavior is described by the equation: C = 175 + 0.8DI, while firm's investment spending behavior is described by the equation: I = 60 + 0.25Y-750r. Trade is allowed and currently, total exports is fixed at $150 million while total imports is described by the equation: IM = 320 +0.1Y. The government's spending is fixed at $840 million and net taxes is described by the equation: T=50 + 0.25Y. (Question 1 of 6) What is the current equilibrium level of GDP (in millions of dollars)? (report your answer at 3 decimal places)

Consider an economy characterised by: C = 500+ 0.8(Y-T) I = 400 120r +0.1Y G=300 T = 0.25Y L(r, Y) = Y - 300r M/P=600 13 where C, Y, I, G, T, r, L and M/P, denote consumption, output, investment, government spending, taxes, the interest rate, liquidity preferences and the real money supply, respectively. • Derive expressions for the IS and the LM schedules and plot the two curves. . Find the equilibrium interest rate and the equilibrium level of income. Derive the Keynesian multiplier and comment its properties compared to the standard case. . Calculate and interpret the effects on Y and r of an increase of money supply that bring M/P to 1200.

Compute the two-year nominal interest rate (12) using the exact formula and the approximation formula for each set of assumptions listed in the following tables. The assumptions are in each table's first three columns: they give values for the current one-year interest rate (it), next year's expected one-year interest rate (i+1), and the term premium on a two-year bond (x). Enter your response for the approximate rate as calculated; for the exact rate, round your response to three decimal places. Term Premium 0% 1₁t 2% 1₁t+1 3% Exact int % Approx. 12t %

Question 2: Consider a model exactly like that in Question 1 - where the person receives income $48,326 - in period 1 and additional income $44,928 in period 2 except let's now suppose that the person faces a liquidity constraint. Specifically, she can still save at an interest rate of 4%, but if she borrows, then she must pay an interest rate of 8%. (a) If the person wants to save, the relevant interest rate is 4%. For what values of 8 is it optimal to save? [Hint: You already know the answer from Question 1.] (b) If the person wants to borrow, the relevant interest rate is 8%. (i) Suppose the interest rate is 8%, and solve for the optimal c₁ and c₂ as a function of 8. (ii) If the interest rate is 8%, for what values of 8 is it optimal to borrow? [Note: Please report your answer to 5 decimal points.] (c) Given the liquidity constraint, for what values of 8 is it optimal to neither borrow nor save? [Hint: Two conditions must hold: (i) 8 must be such that the person does NOT want to…