Consider an economy with $12 billion in base money and a multiplier of 3. The money supply is currently $12 billion x3-$36 billion. Now let's say that the amount of base money increases by 50 percent, to $18 billion. How must the multiplier change for the money supply to remain unaffected by this change in base money? Instructions: Round your answer to two decimal places. The multiplier must change to:
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- Please complete the two attached graphs and answer the following questions for this. A. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2.5 billion. Based on the changes made to the money market in the previous scenario, would the new interest rate causes the level of investment spending to Rise or Fall? And by $1.02 billion, $0.62 billion, or $2.5 billion? B. Taking the multiplier effect into account, will the change in investment spending cause the quantity of output demanded to decrease or increase? And $1.2, $2, or $5 billion at every price level? C. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the crowding out, automatic stabilizer, multiplier, or liquidity preference effect?Consider an economy described by the following equations. Y= C + I + GC= 100 + .75 (Y - T)I= 500 - 50rG= 125T= 100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Answer the questions based on the following equations above. a. What is the value of the multiplier? b. What is the equilibrium equation for Y? Show your solution. c. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent, so r=4. What is the value of output? Show your solution. d. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. Show your solution. e. In this case, explain the policy that was used by the policymaker to target the aggregate demand.a. If money supply is increased by 10, what will be the new interest rate? Round your answers to one decimal place. Pabst: 5 Numeric ResponseEdit Unavailable. 5 correct.% Kokanee: 6 Numeric ResponseEdit Unavailable. 6 correct.% b. What will be the increase in investment spending as a result of this new interest rate? Pabst: 60 Numeric ResponseEdit Unavailable. 60 incorrect. Kokanee: 50 Numeric ResponseEdit Unavailable. 50 incorrect. c. If the multiplier is 3 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? Pabst Can you please help with B, C
- Use simplified money multiplier formula to answer this question. Assume banks do not keep excess reserves. Suppose households $100 bln in cash and $800 bln in bank deposits. Money multiplier in this economy is equal 10.What happens with money supply when households use $10 bln to fund their digital wallets with cash to set up accounts on such platforms as Apple wallet, Google wallet, Samsung wallet, Venmo, and others.Suppose that the reserve requirement for checking deposits is 16 percent and that banks do not hold any excess reserves. If the Fed sells $2 million of government bonds, the economy's reserves (either increase or decrease) by $______million, and the money supply will (increase or decrease) by $______million. Now suppose the Fed lowers the reserve requirement to 8 percent, but banks choose to hold another 8 percent of deposits as excess reserves. True or False: The money multiplier will increase. False True or False: As a result, the overall change in the money supply will increase. TrueExplanation it correctly Q)Assume that some people who receive bank loans do not deposit the full amount of the loan into a bank. This will cause the money multiplier to be the bank deposits multiplier. A) smaller than B) greater than C) neither greater than or smaller than D) the same as
- The money market in the United States and the investment demand curve are as shown in the graphs below. Currently, the Federal Reserve has a money supply of $40 billion and the money market is in equilibrium. a. Suppose the Federal Reserve increases the money supply by $20 billion. Use the money market and investment demand graphs to show the effects of the increase in the money supply on interest rates, money demand, and investment. Instructions: In the money market graph, use the tool provided 'MS,1' to draw a new money supply curve. Plot only the endpoints of the line (2 points total). Use the tool provided 'New Equilibrium' to plot a new equilibrium interest rate.Assume that a government cuts its expenditure and therefore runs a public-sector surplus. (a) What will this mean for the equilibrium national income?(b) What will this mean for the demand for money and to interest rates?(c) Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply?(d) What effect will each of the two scenarios in (c) will have on the rate of interest rate compared with its original level?Find the value of Money multiplier when MPS=MPC
- Give typing answer with explanation and conclusion A standard "money demand" function used by macroeconomists has the form ln(m)=β0+β1ln(GDP)+β2R, Where m is the quantity of (real) money, GDP is the value of (real) gross domesticproduct, and R is the value of the nominal interest rate measured in percent per year. Supposed that β1 = 2.66 and β2 = −0.05. A) What is the expected change in m if GDP increases by 4%? The value of m is expected to_________(increase or decrease ) by approximately ________% (Round your response to the nearest integer) B) What is projected to change in m if the interest rate increases form 2% to 6% ? The value of m is expected to ________(increase/decrease) by approximately ________% (Round your response to the nearest integer)Consider an economy described by the following equations:Y = C + I + G (1)C = 100 + 0.75(Y − T) (2)I = 500 – 50 r (3)G = 125T = 100where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000.1. Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. Is it greater or lower than full-employment level? How much 2. Assuming no change in monetary policy (as was in part i), what change in government purchases would restore full employment?1. Assuming no change in fiscal policy, what change in the interest rate would restore full employment?Consumption function C=250+0.6(Y-T) Investment I=100-20r Money demand function (M/P)=Y-20r a. Government purchases and taxes are both 100. In the accompanying diagram, graph the IS curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. b. The money supply M is 2,875 and the price level P is 5. In the accompanying diagram, graph the LM curve for r ranging from 0 to 8 by dragging and dropping the end points to the correct locations. c. Find the equilibrium interest rate, r, and the equilibrium level of income Y.