Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 16, Problem 3PA
Subpart (a):
To determine
Increase in demand for money.
Subpart (b):
To determine
Increase in demand for money.
Subpart (c):
To determine
Increase in demand for money.
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Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money.
Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate will , which causes aggregate demand to .
If instead the Fed wants to stabilize aggregate demand, it should the money supply by government bonds.
5) Suppose a computer virus disables the nation’s automatic teller machines , making withdrawals from bank accounts less convenient .As a result, people want to keep more cash on hand ,increasing the demand for money.
a) Assume the Fed does not change the money supply . According to the theory of liquidity preference,what happens to the interest rate? What happens to aggregate demand.
b) If instead the Fed wants to stabilize aggregate demand, how should it change the money supply?
C) If its want to accomplish this change in the money supply using open-market operations,what should it do?
Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money.
Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate willfall , which causes aggregate demand torise .
Chapter 16 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- Suppose a wave of negative “ animal spirits” overruns the economy, and people become pessimistic about the future.What happens to aggregate demand? If the Fed wants to stabilize aggregate demand, how should it alter the money supply? If it does this, what happens to the interest rate? Why might the Fed choose not to respond in this way?arrow_forwardWhich of the following describes the chain of events the Central bank uses to fight recession? A. Raise the monetary policy rate target, sell government securities, decrease reserves and loans, increase aggregate demand.B. Raise the monetary policy rate target, buy government securities, increase reserves and loans, decrease aggregate demand.C. Lower the monetary policy rate target, buy government securities, decrease reserves and loans, decrease aggregate demand.D. Lower the monetary policy rate target, buy government securities, increase reserves and loans, increase aggregate demand.arrow_forwardSuppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…arrow_forward
- Suppose that expanded credit card availability makes people demand less money at every value of money. a) Using the graph of the money market, show and explain how this change will impact the equilibrium value of money and the equilibrium price level in the economy (do not forget to label the axes). Using the graph of the money market, show and explain the action the Federal Reserve could take to return the economy to its initial price level.arrow_forwarda) Explain what happens to Money Demand when each of the following occurs: i, incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward.arrow_forwardSuppose the economy is in long-run equilibrium with GDP approaching $23T and the unemployment rate is approaching 4%. Now, let's say that the Fed has decided to decrease the money supply by 6%! The Fed proposes this move by raising the Prime Rate from the current 3.25 to 4.00 and to sell a new trunk or class of 30-year Treasury Bonds. This was not expected! What might be the short and long run effects on the economy as a whole if this were to take place? What happens to the inflation rate? What happens with unemployment? Like I said, this was actually expected that the Fed might take some sort of constriction action to stave off reduce inflation and to strengthen the money supply. However, President Biden, Congress and the Treasury Department had hoped for no contraction of the money supply until 2023.arrow_forward
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