ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408738
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 5P
Sub-part
A
To determine
whether the fed would increase or decrease the money supply.
Sub-Part
B
To determine
whether the fed should buy or sell government securities in case it uses open market operations.
Sub-Part
C
To determine
whether the interest rate and the quantity of money demanded would increase, decrease or remains unchanged.
Expert Solution & Answer
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Students have asked these similar questions
Suppose the Fed sells $500 billion in government securities, which results in a $5000 billion decrease in the money supply.
In the long run, the decrease in the money supply will cause the price level in the economy to __________ and real GDP to ___________.
Options: remain unchanged; decrease; increase
Thank you.
2. Money supply, money demand, and adjustment to monetary equilibrium
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).
Fill in the Value of Money column in the following table.
Quantity of Money Demanded
Price Level (P) Value of Money (1/P)
(Billions of dollars)
0.80
1.25
2.0
1.00
1.00
2.5
1.33
0.75
4.0
2.00
0.50
8.0
mon
Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the more
the typical transaction requires, and the more money people will wish to hold in the form of currency or demand deposits.
Assume that the Fed initially fixes the quantity of money supplied at $4 billion.
Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue
connected points (circle symbol) to graph the money demand curve.
2.00
O
1.75
MS₁
1.50
1.25
Money Demand
1.00
0.75
MS₂
0.50…
37.
Supply-side economics is the school of thought that advocates the use of
A)
monetary policy to stimulate long-run aggregate supply.
B)
fiscal policy to stimulate long-run aggregate demand.
C)
monetary policy to stimulate short-run aggregate demand.
D)
fiscal policy to stimulate long-run aggregate supply.
Chapter 15 Solutions
ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
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