In the long-run money market, the money demand curve slopes Question 2 options: upward, because at higher prices people want to hold more money. downward, because at higher prices people want to hold more money. downward, because at higher price people want to hold less money. upward, because at higher prices people want to hold less money.

Let us pretend that you are the director of monetary affairs for the Fed and you just got authority to pay interest on excess reserves.  The initial conditions in the reserve and money markets, before the authority was granted are as follows: rr = .10 C = 200  D = 4000  ER = 00 a) Show all of your work. i) Calculate the MB. ii) Calculate the money multiplier. iii) What is the money supply (use mm x MB to calculate this)? b)  If Rd= 407.5 – 50 iff,given the information above, what is the market clearing federal funds rate?  Show all of your work  Draw a reserve market diagram depicting exactly what is going on here! Label this initial equilibrium point as point A. (10 points for correct and completely labeled diagram)  c) So you get this authority and decide, along with the FOMC, that the most appropriate rate to pay on excess reserves would be 20 basis points (0.20%).  Given these new conditions, explain what would happen reserve demand and why.  You don't need to derive an…

An increase in the reserve requirement Multiple Choice ___ increases the money supply by increasing excess reserves and increasing the monetary multiplier. ___ decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. ___ increases the money supply by decreasing excess reserves and decreasing the monetary mutiplier. ___ decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.

24.   If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _____ in investment and a(n) _____ in consumer spending.   increase; decrease   decrease; increase   increase; increase   decrease; decrease   26.   Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect:   the demand curve for money to shift outward.   a downward movement along a fixed money demand curve.   the demand curve for money to shift inward.   an upward movement along a fixed money demand curve.