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- (M/P)d = 1,000 − 100r,M = 1000P = 2.a) Graph the supply and demand for real money balances.b) What is the equilibrium interest rate?c) Assume that the price level is fixed. What happens to the equilibrium interest rate if the supply ofmoney is raised from 1,000 to 1,200?d) If the Central Bank wishes to raise the interest rate to 7 percent, what money supply should it set?I'm having an issue finalizing the interpretation of the graph. The Graph is correct. As a result of this change in preferences, equilibrium in the money market will be at a lower interest rate. Real money holdings will rise. Is that correct?Let: C = consumption I = investment spending G = government spending Tx = tax revenue Yd= after-tax income MS = money supply MD = money demand r = interest rateAssume for a given closed economy:(i) Consumers spend $200 billion plus 80% of after-tax income, orC=200+0.8 Yd(ii) Investment demand varies inversely with the interest rate, such thatI= 500-2000r(iii) Currently government spending and taxes are both $250 billion, orG=250 and Tx=250,(iv) The total money demand or liquidity preference schedule for this economy is an inversefunction of the rate of interest and is given by the equationMD=850-1000r(v) The required reserve ratio for banks in this economy is 20%. No bank holds excessreserves, and everybody keeps their money in the bank. The total of reserves in the banks is$150 billion.Answer the following questions given the information above.d) The central bank wants national income to be $3000 billion. What must investment befor the equilibrium level of national income to be $3000…
- Let: C = consumption I = investment spending G = government spending Tx = tax revenue Yd = after-tax income MS = money supply MD = money demand r = interest rate Assume for a given closed economy: (i) Consumers spend $200 billion plus 80% of after-tax income, or C=200+0.8 Yd (ii) Investment demand varies inversely with the interest rate, such that I= 500-2000r (iii) Currently government spending and taxes are both $250 billion, or G=250 and Tx=250, (iv) The total money demand or liquidity preference schedule for this economy is an inverse function of the rate of interest and is given by the equation MD=850-1000r (v) The required reserve ratio for banks in this economy is 20%. No bank holds excess reserves, and everybody keeps their money in the bank. The total of reserves in the banks is $150 billion. Answer the following questions given the information above. a) What is the total money supply? b) What is the equilibrium interest rate? c) What is the equilibrium level of national…Question 10a. (i).Draw a graph showing equilibrium in the money market. Carefully label all curves andaxes and explainwhy the curves have the slopesthey do.(ii). Using the graph you prepared in a(i), illustrateand explain what happens when the Central Bankdecreases the money supply.(iii).When the Central Bank decreases the money supply, the equilibrium level of income changes. Illustrate andexplain how.1) In the IS equation why wasnt G in the calculations. 2)Suppose that with all exogenous variables, including T and M at their original values, households become less confident about the future and reduce their autonomous level of consumption from 200 to 150. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached. 3)Suppose that with all exogenous variables at their original values, the autonomous part of money demand increases to 70. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached.
- A decrease in the interest rate, other things beingequal, causes a (an)a. upward movement along the demand curvefor money.b. downward movement along the demandcurve for money.c. rightward shift of the demand curve for money.d. leftward shift of the demand curve for money.Suppose the government borrows $20 billion more next year than this year. a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b. What happens to investments?To private savings?To public savings?To national savings? Compare the size of the changes to the $20 billion of extra government borrowing. c.How does the elasticity of supply of loanable funds affect the size of these changes? d. How does the elasticity of demand of loanable funds affect the size of these changes?List and describe thefactors that affectthe money marketand the equilibriuminterest rate
- A number of articles published in the Wall Street Journal in the pastyear convince Americans to save more in financial markets andintermediaries to prepare for retirement. The ______ curve in theloanable funds market shifts ______, driving the equilibrium interestrate ______.a. Demand, right, upb. Demand, left, downc. Supply, right, downd. Supply, left, upThe following equations describe an economy. Y = C + I + G. C = 120 + 0.5( Y - T ). I = 100 - 10r. G = 50. T = 40. ( M/ P) d = Y - 20r. M = 600. P = 2. What are the equilibrium level of income and the equilibrium interest rate? If the government increases government spending by 45, what will be the new equilibrium level of income and equilibrium interest rate?In your modules, you were given a video on how "money is created" by the Fed using one of its tools. Thoroughly discuss this concept. Your discussion MUST include how the multiplier works.
