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blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up, which causes businesses to invest . This new factories and upgraded equipment. The result is a decrease in capital improvements like in the equilibrium price level, and in aggregate demand, in the equilibrium level of Real GDP.

blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up, which causes businesses to invest . This new factories and upgraded equipment. The result is a decrease in capital improvements like in the equilibrium price level, and in aggregate demand, in the equilibrium level of Real GDP.

Brief Principles of Macroeconomics (MindTap Course List)
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
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INTEREST RATE (Percent) 0 40 PRICE LEVEL I 80 120 160 INVESTMENT (Billions of dollars) Demand for Investment 1 1 1 I I 200 The following graph shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves in the goods and services market before the Fed implements its contractionary policy. Show the short-run effect of the change in investment demand you illustrated on the previous graph by shifting the appropriate curve on the graph here. (?) Real GDP (Trillions of dollars) 240 AD Demand for Investment SRAS 101 AD ++ 101 SRAS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up . This in capital improvements like in aggregate demand, in the equilibrium level of Real GDP. , which causes businesses to invest new factories and upgraded equipment. The result is a decrease in the equilibrium price level, and
Transcribed Image Text:INTEREST RATE (Percent) 0 40 PRICE LEVEL I 80 120 160 INVESTMENT (Billions of dollars) Demand for Investment 1 1 1 I I 200 The following graph shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves in the goods and services market before the Fed implements its contractionary policy. Show the short-run effect of the change in investment demand you illustrated on the previous graph by shifting the appropriate curve on the graph here. (?) Real GDP (Trillions of dollars) 240 AD Demand for Investment SRAS 101 AD ++ 101 SRAS Fill in the blanks to interpret the effect of the Fed's policy. When the Fed sells bonds, the amount of money in circulation in the economy decreases drives interest rates up . This in capital improvements like in aggregate demand, in the equilibrium level of Real GDP. , which causes businesses to invest new factories and upgraded equipment. The result is a decrease in the equilibrium price level, and
Suppose the Federal Reserve shifts to a contractionary monetary policy by selling bonds through open-market operations. This problem will work through the short-run effects of this move according to the Keynesian transmission mechanism. The following graph shows the money demand and money supply curves. As a result of the Fed's policy, the interest rate rises Adjust the following graph to show the effect of the Fed's contractionary monetary policy. (?) INTEREST RATE 15 600 900 1200 1500 QUANTITY OF MONEY (Billions of dollars) INTEREST RATE (Percent) The following graph shows the demand for investment. 40 1800 Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or placing the black point (plus symbol) along the curve. Hint: Be sure the new interest rate corresponds to the interest rate you have on the top graph. (?) Demand for Investment 80 120 INVESTMENT (Billions of dollars) 160 200 4 - 4 - 10 240 to 12% 10 Demand for Investment ++
Transcribed Image Text:Suppose the Federal Reserve shifts to a contractionary monetary policy by selling bonds through open-market operations. This problem will work through the short-run effects of this move according to the Keynesian transmission mechanism. The following graph shows the money demand and money supply curves. As a result of the Fed's policy, the interest rate rises Adjust the following graph to show the effect of the Fed's contractionary monetary policy. (?) INTEREST RATE 15 600 900 1200 1500 QUANTITY OF MONEY (Billions of dollars) INTEREST RATE (Percent) The following graph shows the demand for investment. 40 1800 Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or placing the black point (plus symbol) along the curve. Hint: Be sure the new interest rate corresponds to the interest rate you have on the top graph. (?) Demand for Investment 80 120 INVESTMENT (Billions of dollars) 160 200 4 - 4 - 10 240 to 12% 10 Demand for Investment ++
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