According to your graph, the equilibrium value of money is, therefore the equilibrium price level isNow, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion.In order to reduce the money supply, the Fed can use open market operations tothe public.Use the purple line (diamond symbol) to plot the new money supply (MS2 ).Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied isthan thequantity of money demanded at the initial equilibrium. This contraction in the money supply willpeople's demand for goods andservices. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services willandthe value of money will 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 DemandedPrice Level (P)Value of Money (1/P)(Billions of dollars)0.801.51.002.01.333.52.007.0Now consider the relationship between the price level and the quantity of money that people demand. The higher the price level, themoney thetypical transaction requires, and themoney 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 $3.5 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 blueconnected points (circle symbol) to graph the money demand curve.2.001.75MS11.501.25Money Demand1.000.75MS,0.500.25+345678QUANTITY OF MONEY (Billions of dollars)VALUE OF MONEY

Given below is the table which gives the value of money at each price level of Price level…

1dea 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 1.5 1.00 2.0 1.33 3.5 2.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The higher the price level, the money the typical transaction requires, and the 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 $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS, ) 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 1.75 MS, 1.50 1.25 Money Demand 1.00 0.75 MS, 0.50 025 2 QUANTITY OF MONEY (Billions of dollars) VALUE OF MONEY

1dea 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 1.5 1.00 2.0 1.33 3.5 2.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The higher the price level, the money the typical transaction requires, and the 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 $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS, ) 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 1.75 MS, 1.50 1.25 Money Demand 1.00 0.75 MS, 0.50 025 2 QUANTITY OF MONEY (Billions of dollars) VALUE OF MONEY

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10
Fill in the Value of Money column in the following table. Quantity of Money Demanded (Billions of dollars) Price Level (P) Value of Money (1/P) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the 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 $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS,) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
According to your graph, the equilibrium value of money is therefore the equilibrium price level is Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion. In order to increase the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply (MS2). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This expansion in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will
Suppose 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) foxes the quantity of money supplied. Suppose the price level increases from 90 to 105. 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) 2 10 Money Supply Morey Demand 60 10 MONEY (Billions of dollars) 100 120 Money Demand The following graph plots the aggregate demand curve for this economy. BT Money Supply Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they is restored in the money market at an interest rate of [ than the quantity of money their money holdings. In order to…
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 12 10 8 2 0 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 = Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase…
1.25 MS, 1.00 Money Demand 0.75 MS2 0.50 0.25 3 4 QUANTITY OF MONEY (Billions of dollars) , therefore the equilibrium price level is According to your graph, the equilibrium value of money is Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion. In order to increase the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply ( MS2 ). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This expansion in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will VALUE OF MONEY
Suppose 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 decreases from 150 to 125. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. ? INTEREST RATE (Percent) 12 10 2 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply
Suppose 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 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be (greater/less)than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of ______%. The following graph plots the…
5. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 AD₁ 100 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ $3 AD₂
Suppose 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 decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Following the price level decrease, the quantity of money demanded at the initial interest rate of 6% will be (greater/less) than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to (increase/decrease) their money holdings. In order to do so, they will (buy/sell) bonds and other interest-bearing assets, and bond issuers will realize that they (have to offer higher/can offer lower) interest rates until equilibrium is restored in the money market at an interest rate of________% The following graph plots the…
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) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the 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 $3.5 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.
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new agregate demand curve (AD,) is parallel to AD. You can see the slope of AD by selecting it on the following graph. (? 116 114 AD, 112 AD 110 AD 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) The following graph shows the money market in equilibrium at an interest rate of 1.5% and quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 3.0…