PRINCIPLES OF MACROECONOMICS-CONNECT ACC
7th Edition
ISBN: 9781264088485
Author: Frank
Publisher: MCG
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Question
Chapter 14, Problem 2P
(a)
To determine
Estimate the average money held with the nominal interest rate.
(b)
To determine
Illustrate the money demand curve for the interest rate between 1% and 12%.
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Students have asked these similar questions
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?
When the interest rate falls, how does the opportunity cost of holding money and the quantity of money demanded
change?
Draw a demand for money curve and label it MD.
Nominal interest rate (percent per year)
8-
on Heip
Draw a point at an interest rate of 5 percent a year.
Draw an arrow on the MD curve to show the effect of a rise in the interest rate above 5 percent a year. Label it 1.
7-
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.
6-
When the interest rate falls, other things remaining the same, the opportunity cost of holding money
5-
and the
4-
O A. falls; quantity of money demanded increases
3-
O B. falls; demand for money increases
2-
C. rises; demand for money decreases
D. rises; quantity of money demanded decreases
1-
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
Quantity of money (trillions of dollars)
>>> Draw only the objects specified in the question.
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Chapter 14 Solutions
PRINCIPLES OF MACROECONOMICS-CONNECT ACC
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