Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 24, Problem 6PA
Subpart (a):
To determine
Subpart (b):
To determine
Demand and supply model resulting from a new legislation.
Subpart (c):
To determine
Demand and supply model resulting from a new legislation.
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Students have asked these similar questions
The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "“r"?
Figure 15.2
interest rate
S*
S'
r*
B
r
r'
m*
m m'
quantity of money
a. There will be an excess demand for money.
b. The Fed will buy U.S. Treasury securities.
c. The quantity of money demanded will fall.
d. The quantity of money supplied will fall.
e. There will be an excess supply of money.
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes
the quantity of money supplied.
Suppose the price level increases from 150 to 175.
Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.
INTEREST RATE (Percent)
18
15
12
60
3
0
0
15
Money Supply
Money Demand
30
45
60
MONEY (Billions of dollars)
75
90
Money Demand
Money Supply
(?)
After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be
supplied by the Fed at this interest rate. People will try to
other interest-bearing assets, and bond issuers will find that they
equilibrium at an interest rate of
%
than the quantity of money
bonds and
interest rates until the money market reaches its new
their money holdings. In order to do so, people will
Changes to both the money supply and the velocity of money include changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different?
Chapter 24 Solutions
Essentials of Economics (MindTap Course List)
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Similar questions
- The above figure has the demand for money curve. Suppose the Fed initially sets the quantity of money equal to $0.6 trillion. Draw the supply of money curve in the figure. What is the equilibrium interest rate? Now suppose the Fed increases the quantity of money to $0.9 trillion. Draw the new supply curve. What is the new equilibrium interest rate? If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?arrow_forwardSuppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level increases from 150 to 175.arrow_forwardThe following graph plots the aggregate demand curve for this economy. Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. ? PRICE LEVEL 240 200 160 120 80 40 0 20 Aggregate Demand 40 60 80 OUTPUT (Billions of dollars) 100 120 The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. Aggregate Demand in residential and business spending, which will causearrow_forward
- According to John Maynard Keynes, Answer the demand for money in a country is determined entirely by that nation’s central bank. the supply of money in a country is determined by the overall wealth of the citizens of that country. the interest rate adjusts to balance the supply of, and demand for, money. the interest rate adjusts to balance the supply of, and demand for, goods and services. Question 34 While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows: Answer “Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is…arrow_forwardSuppose 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_forwardMoney Market - This graph shows the relationship between the supply and demand for money in the economy. It is used to explain the determinants of interest rates, and to illustrate the effects of various policy interventions, such as changes in monetary policy or changes in the money supply. show this with a graph please.arrow_forward
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