Principles of Macroeconomics
6th Edition
ISBN: 9780073518992
Author: Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Question
Chapter 12, Problem 6P
To determine
Estimate the average money held with the nominal interest rate.
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Students have asked these similar questions
The accompanying table shows Francesca's estimated annual benefits of holding different amounts of money.
Average money holdings
$ 700
Total benefit
$ 50
800
59
900
66
1,000
71
1,100
74
How much money will Francesca hold if the nominal interest rate is 6 percent? (Assume she wants her money holdings to be in multiples of $100.)
Multiple Choice
$1,000
$900
$800
$700
When the interest rate falls, how does the opportunity cost of
holding money and the quantity of money demanded change?
Nominal interest rate (percent per year)
8
7-
1
Draw an arrow on the MD curve to show the effect of a rise
in the intérest rate above 5 percent a year. Label it 1.
5-
Draw an arrow on the MD curve to show the effect of a fall
in the interest rate below 5 percent a year. Label it 2.
4-
3-
When the interest rate falls, other things remaining the
same, the opportunity cost of holding money
and
MD
the
O A. falls; quantity of money demanded increases
B. rises; quantity of money demanded decreases
3.0
C. falls; demand for money increases
2.6
2.7
2.8
2.9
3.0
3.1 3.2
3.3
3.4
Quantity of money (trillions of dollars)
OD. rises; demand for money decreases
70°F
Sunny
Suppose that the interest rate is 4 percent. What is the future value of $100 four years from now? How much of the future value is total interest? By how much would total interest be greater at a 6 percent interest rate than at a 4 percent interest rate?
Chapter 12 Solutions
Principles of Macroeconomics
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