Let's conSider the effects of ah introduction of the ATM machines (back in the 1980s). Imagine that the cost of going to the bank and exchange money for bonds or bonds for money is y cookies. Imagine also that the nominal interest rate is R, the price level is P and the REAL income that consumers will want to spend is y. Imagine that the entire yearly income is transferred to their bank accounts at the beginning of the year. Consumers consume continuously throughout the year. (a) What is the TOTAL cost of holding M dollars on average over the year? (Note: the total cost is the sum of the opportunity cost and the cost of going to the bank N times a year). (b) What is the relation between the number of trips to the bank, N, and the average money demand, M? (c) What is the optimal money demand? What are the factors that affect

Interest Rate Qty. supplied Qty. demanded 5% 130 170 6% 135 150 7% 140 140 8% 145 135 9% 150 125 10% 155 110 The table above shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates.  What is the equilibrium interest rate and quantity in the capital financial market? Describe how you can tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate level.  Calculate the new equilibrium  interest rate and quantity and explain why the direction of the interest rate shift makes sense.

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Consider an economy described by the following equations: Y = C + I + G Y = 6100 G = 1100 T = 1100 C = 1000 + .75(Y - T) I = 1100 - 60r in this economy compute private savings, public savings and national savings Find the equilibrium interest rate Now suppose that G rises to 1200. Compute private savings, public savings and national savings. Find the new equilibrium interest rate.