Changes in the money supplyThe following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it haa central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other worldeconomies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on thegraph by the grey star symbol.INTEREST RATE (Percent)6.05.55.0454.0353.025200Money Demand0.1Money Supply0.2 03 0.4 0.5 0.6 0.7MONEY (Trillions of dollars)084New MS CurveNew EquilibriumⒸimage 1Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open-market operations tothemoney bythe public.Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in thecorrect location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money.Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate willthe cost of borrowing, causing residential and business investment spending toat each price level.and the quantity of output demanded to Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open-market operations tomoney bythe public.theUse the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply curve (MS) in thecorrect location. Place the black point (plus symbol) at the new equilibrium interest rate and quantity of money.Suppose the following graph shows the aggregate demand curve for this economy. The Fed's policy of targeting a lower interest rate willthe cost of borrowing, causing residential and business investment spending toat each price level.Shift the curve on the graph to show the general impact of the Fed's new interest rate target on aggregate demand.?PRICE LEVELOUTPUTAggregate Demandand the quantity of output demanded toAggregate Demandimage 2

Central bank of a nation controls the money supply in the economy. A change in money supply changes…

The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it ha a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 60 5.5 5.0 45 3.5 3.0 25 2.0 Money Demand 0 0.1 0.2 Money Supply 03 0.4 05 06 0.7 MONEY (Trillions of dollars) 0.8 4 New MS Curve .+ New Equilibrium ? image 1 Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public.

The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it ha a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 60 5.5 5.0 45 3.5 3.0 25 2.0 Money Demand 0 0.1 0.2 Money Supply 03 0.4 05 06 0.7 MONEY (Trillions of dollars) 0.8 4 New MS Curve .+ New Equilibrium ? image 1 Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(Figure: A Money Market) The accompanying figure Equilibrium in the Money Market shows the money market in equilibrium at an interest rate of r2. Holding the money supply constant, which of the following might cause the interest rate in the market to decrease to r1? A) The inflation rate falls to historically low levels. B) Higher payroll taxes cause employers to pay workers cash under the table. C) There is a significant increase in the stock market. D) A recession decreases real GDP.
Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy's levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under a balanced government budget. Real Interest Rate (Percent) 7 REAL INTEREST RATE 10 8 w 2 50 In 0 6 5 43 N 2 National Saving (Billions of dollars) 55 50 45 40 20 35 30 Given the information in the table above, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. ? Market for Loanable Funds 40 60 QUANTITY OF LOANABLE FUNDS Domestic Investment (Billions of dollars) 25 35 80 45 100 55 65 75 Demand -0- Net Capital Outflow (Billions of dollars) -10 -5 Supply + 0 5 Equilibrium 10 15
Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $45,000 and that the velocity of money of this country is 5. This implies that the money supply, in this country, is:
Assume that the following data characterize the hypothetical economy of Trance: money supply = $210 billion; quantity of money demanded for transactions = $160 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. Instructions: Enter your answers as a whole number. a. What is the equilibrium interest rate in Trance? percent b. At the equilibrium interest rate, what are the quantity of money supplied, the quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance? Quantity of money supplied = $ billion Quantity of money demanded = $ billion Amount of money demanded for transactions = $ billion Amount of money demanded as an asset = $ billion
Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy's levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under a balanced government budget. Real Interest Rate (Percent) 7 REAL INTEREST RATE 10 2 0 6 0 5 4 3 2 National Saving (Billions of dollars) 45 40 20 35 30 25 20 Given the information in the table above, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 40 60 QUANTITY OF LOANABLE FUNDS 80 Domestic Investment (Billions of dollars) 30 35 40 45 50 100 55 。 Net Capital Outflow (Billions of dollars) -15 -10 -5 0 Demand Supply + 5 Equilibrium 10
10. According to the European Central Bank website, the treaty establishing the European Community "makes clear that ensuring price stability is the most important contribution that monetary policy can make to achieve a favourable economic environment and a high level of employment." If price stability is the only goal of monetary policy, explain how monetary policy would be conducted during recessions. Analyze both the case of a recession that is the result of a demand shock and the case of a recession that is the result of a supply shock.
F1
You have been given the banking and financial data in the following table. Your boss wants you to calculate the M1 money supply (using the U.S. laws and regulations) but forgets to tell you which year the data pertain to. You call your boss and she tells you that the data is for 2021. In that case, you calculate the following for your boss: Currency in Circulation $100 Demand Deposits $1,000 Savings Deposits $4,400 Small Time Deposits (Less than $100,000) $2,000 Large Time Deposits (Greater than $100,000) $4,000 Money Market Mutual Funds Deposits Owned by Individuals $1,000 Money Market Mutual Funds Deposits Owned by Institutions $5,000 Total Reserves in the Banking System $2,100 O a. M1 = $1,000 O b. M1 = $1,100 O c. M1 $2,200 = O d. M1 $4,300 O e. M1 $5,500
Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 100
The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.5 5.0 A Money Demand New MS Curve 4.5 4.0 3.5 3.0 2.5 20 2.0 1.5 0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (?) Suppose the Fed announces that it is raising its target interest rate by 25 basis points, or 0.25 percentage points. To do this, the Fed will use open- market operations to money by the the public.
Assume that the following data characterize the hypothetical economy of Trance: money supply = $180 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. Instructions: Enter your answers as a whole number. a. What is the equilibrium interest rate in Trance? percent b. At the equilibrium interest rate, what are the quantity of money supplied, the quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance? Quantity of money supplied = $ billion Quantity of money demanded = $ billion Amount of money demanded for transactions = $ billion Amount of money demanded as an asset = $ billion
The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = P x Q. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (M x V) = Percentage Change in (PxQ) You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate. of 5% per year, you can use this…