Note:-Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure. ST8allaogeb emil anoifanimonoblsm²4. Suppose there is a financial crisis and financial markets crash. How would this increasein risks of financial assets affect money demand or money supply and interest rate inthe liquidity preference model? Show the effect on the following graph.Make sure to include effect on interest rate.Interest rateM³MdSM dQuantity of money balanceslizaged to atspitiba yud bna thuoco apnivas oy moil 00012 notast uoy esoqque SCSM bno IM no fpetto ofsibemmi lenovo brit ei todW.00012 to rhow, Ans suri riw(word bna gnignierto el rloss to atrenogmoo doirlw worl2)IMSM

Money market: As the central bank issues the fresh currency and hence, they determine the level of…

4. Suppose there is a financial crisis and financial markets crash. How would this increase in risks of financial assets affect money demand or money supply and interest rate in 5010 H the liquidity preference model? Show the effect on the following graph. Make sure to include effect on interest rate. Interest rate Ms Md Quantity of money balances. IM B

4. Suppose there is a financial crisis and financial markets crash. How would this increase in risks of financial assets affect money demand or money supply and interest rate in 5010 H the liquidity preference model? Show the effect on the following graph. Make sure to include effect on interest rate. Interest rate Ms Md Quantity of money balances. IM B

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 6CQQ

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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?
. Assume that the banking system has total reservesof $100 billion. Assume also that required reservesare 10 percent of checking deposits and that bankshold no excess reserves and households hold nocurrency.a. What is the money multiplier? What is the moneysupply?b. If the Fed now raises required reserves to20 percent of deposits, what are the change inreserves and the change in the money supply
Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
Consider the following IS-LM model:C=200+0.25YdI=150+0.25Y-1000iG=250T=200Real Money Demand=M/P=2Y-8000iReal Money Supply=1600a. Derive the IS relation.b. Derive the LM relation.c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.d. Solve for values of C, G and I and verify that they add up to Y you obtained in part c.e. Now suppose that the money supply increases to M/P=1840. Solve for Y, i, C and I and describe inwords the effects of an expansionary monetary policy. Show the change in a graph.f. Set M/P to its initial value of 1600. Now suppose that government spending increases to G=400.Summarise the effects of an expansionary fiscal policy on Y, i, C. Use a graph to show the shift in ISand/or LM.
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.
Suppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?
Pls select correct option and explain it. Under the floor system of monetary policy, which interest rate serves as a lower bound on the federal funds rate ? a) The overnight, reverse repo rate b) The overnight repo rate c) IOR d) The discount rate
Describe the difference betweenan exogenous and an endogenous theory about the money supply.In your view what importantdifferences between the twotheories exist?
The public holds no currency. The ratio of reserves to deposits is 0.1. The demand for moneyin an economy is given by Md = $Y(0.8 – 4i). Initially, the monetary base is $100 billion, andnominal income is $5000 billion (or $5 trillion).Please answer the following questions:A) What is the demand for central bank money?B) Find the equilibrium interest rate by setting the demand for central bank money equalto the supply of central bank money.C) What is the value for money multiplier?D) Given that overall money supply equals (1/reserve ratio)*monetary base, is it equal tothe overall demand for money at the interest rate you found in part (B)?
Pls help with this Suppose that the Central Bank has currently set the reserve requirements in the economy to be equal to 10%. Assume that there is no cash drain. Suppose also that in this economy there are $400 in initial deposits and $6,000 of cash. 6. Given the above, what is the total Money Supply (MS) in the economy?Now suppose that the economy’s demand for money (MD) is given by the following equation: ??=12,000−1,000∗rWhere r is the interest rate in integers (e.g. at a 2% interest rate, r = 2). 7. What is the equilibrium quantity of money (M) and interest rate (r) in this economy? Now suppose that the Central Bank wants to close an output gap in the economy, and wants to raise the interest rate by 2% to do this. Assume that the Central Bank targets the Money Supply directly. 8) If the Central Bank wants to change the Money Supply by changing the quantity of cash in the market in order to achieve this interest rate increase, how much does it need to change the quantity of cash?…
• Suppose that a person’s wealth is $50,000 and that her yearlyincome is $60,000. Also suppose that her money demand functionis given by Md = $Y10.35 - i2Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds?What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in words
Using both the liquidity preference framework and thesupply and demand for bonds framework, show whyinterest rates are procyclical (rising when the economyis expanding and falling during recessions).