A decrease in the sensitivity of money demand to the interest rate: a. shifts LM curve to the left. b. shifts LM curve to the right. c. makes LM curve steeper. d. makes LM curve flatter.
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A decrease in the sensitivity of money
a. shifts LM curve to the left.
b. shifts LM curve to the right.
c. makes LM curve steeper.
d. makes LM curve flatter.
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- The central bank decreases the money supply through an open market operation. Such policy is called a monetary_____________________. Under this policy, at a given level of income, the interest rate ______________ and causes LM curev to shift________________________.Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y By how much will the equilibrium level of income (Y) and the interest rate (i) change, if the Fed responds to an increase in government purchases of 160 by increasing nominal money supply to M' = 1,100?State and explain the three motives of holding money according to Keynesii. Show that interest rate has an impact on the income velocity of money. iii Distinguish between Fisher’s quantity theory and Keynesian’s theory of money
- True or false. Explain. 1. For a given level of P (price), is M (nominal money) increases by 10%, M/P also increases by 10%. 2. A monetary expansion leads to a lower output and a higher interest rate. 3. Equilibrium in the financial market implies that an increase in income leads to a decrease in interest rate making the LM curve downward sloping.Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $45,000 and that the velocity of money of this country is 5. This implies that the money supply, in this country, is:In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule? (Omit the unit and answer with the first decimal place.)
- Consider the following numerical example of the IS-LM model: C = 200 + 0.25YD I = 150 + 0.25Y - 1000iG = 250 T = 200 i = .05 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) b. The central bank sets an interest rate of 5%. How is that decision represented in the equations? c. What is the level of real money supply when the interest rate is 5%? Use the expression:(M>P) = 2Y - 8000i d. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I, and G. e. Now suppose that the central bank cuts the interest rate to 3%. How does this change the LM curve? Solve for Y, I, and C, and describe in words the effects of an expansion-ary monetary policy. What is the new equilibrium value of M/P supply? f. Return to the initial situation in which the interest rate set by the central bank is 5%. Now suppose that government spending increases to G = 400. Summarize the effects of an expansionary…Consider the following equations describing real money demand: M/P=Y(4-1.5i) So, if output (Y) in the economy is 820 million USD, National bank decide to print (M) 200 million USD and price level (P) is 5, what is equilibrium level of interest rate in the economy?Assume that the demand for real money balance (M / P) is M / P = 0.8Y – 200i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate r is fixed at 5 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 2,500, P is 1.2, and the growth rate of nominal money is 2 percent, what must i and M be? Show all your work, show formula used and explain why.
- Assuming the growth rate in the velocity of money is 5$. If real GDP grows by 10% this year, and if the money supply does not change this year, how much does the price level change by? a) -5 b)-10 c) 5 d) 10The demand for money is given by Md = $Y (0.3 - i), where $Y = 100 and the supply of money is $20. What is the equilibrium interest rate? What is the impact on the interest rate if central bank money is increased to $25?The demand for money is given by MD=Y 10000r where Y is the GDP and r is the real interest rate. The supply of money is set by the Central Bank to Mg = 1000. Equilibrium in the money market happens when Mp = Ms. D Find the equilibrium GDP in the money market by solving the system MD=Y - 10000r 1000 Ms MD = Ms for Y, MD and Ms. Note that your solution for Y will depend on r! - (3) (4) (5).
