DRAW a diagram for each of the following events, does the dollar rise or fall in value? MUST include a separate diagram for each: a) A recession occurs in the United States, lowering U.S. income. b) An economic boom increases income in China. c) U.S. interest rates decrease.
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DRAW a diagram for each of the following events, does the dollar rise or fall in value?
MUST include a separate diagram for each:
a) A recession occurs in the United States, lowering U.S. income.
b) An economic boom increases income in China.
c) U.S. interest rates decrease.
d) Interest rates decrease in all countries
e) Interest rates rise in Europe and Asia, but not in the United States.
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- Suppose the real interest rates in the United States and Switzerland are both 2%. Now suppose that the Federal Reserve in the United States conducts monetary policy that in turn raises domestic interest rates. Assume there are no policy changes in Switzerland and that their real interest rates stay steady at 2%.Refer to Figure 11.2. A decrease in nominal aggregate output, ceteris paribus, will likely Group of answer choices decrease both the equilibrium interest rate and equilibrium money holdings. increase the equilibrium interest rate and decrease equilibrium money holdings. increase the equilibrium interest rate without changing equilibrium money holdings. decrease the equilibrium interest rate without changing equilibrium money holdings.Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $36,000 and that the velocity of money of this country is 6. This implies that the money supply, in this country, is:
- Q15 Which of the following statements is consistent with a given (i.e., fixed) LM curve? Select one: a. A reduction in the interest rate causes money demand to decrease. b. A reduction in the interest rate causes investment spending to increase. c. An increase in output causes an increase in demand for goods d. An increase in output causes an increase in money demand.Explain how increases in the real interest rate affect the quantity of real money balanced demanded. (Graphically illustrate)Q8 Which of the following statements is consistent with a given (i.e., fixed) IS curve? Select one: a. A reduction in the interest rate causes money demand to decrease. b. A reduction in the interest rate causes investment spending to increase. c. An increase in government spending causes an increase in demand for goods. d. A reduction in the interest rate causes an increase in the money supply.
- Briefly explain (1) Why are the real interest rate and the aggregate expenditure inversely related? (2) Why is the monetary policy reaction curve upward, instead of downward, sloping?D7 Suppose that people hold 17 cents out of every dollar of deposits as currency. Suppose that banks hold 13 cents out of every dollar of deposits as excess reserves. If the Fed buys $100 billion worth of Treasury securities on the open market, what is the change in the money supply? Make sure to express your answers in billions. Make sure to round your answers to the nearest 100th decimal points. For example, 24.56 for $24.56 billion.Q. Explain why a rise in the money supply will be unlikely to affect the real interest rate in the long run.
- . Based on your knowledge of the Quantity Theory of Money and the Equation of Exchange, answer the following questions. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a boom in the business cycle that increases the real GDP increases by 3.5%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the velocity of money declines by 2%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a recession in which the real GDP declines by 3%? Explain briefly. Assume the money supply is $1,200 billion, the velocity of circulation is 8, and the price level is $6. What is the level of real output and nominal output? Assume the money supply is $1,200…60) Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion. Suppose the Federal Reserve increases the money supply to $850 billion. At the previous equilibrium interest rate of 5 percent, will households and firms now be holding more money or less money than they want to hold, and will they be buying or selling short-term financial assets? At the new equilibrium interest rate, households and firms will desire to hold the entire $850 billion of the money supply. What causes households and firms to want to hold the additional $50 billion of the money supply? 61) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases. 1Explain how each of the following developments would affect the supply of money, the demandfor money, and the interest rate. Illustrate your answerswith diagrams. a. The State Bank reduces banks’ reserve requirements.b. Households decide to hold more money to use for holiday shopping.c. A wave of optimism boosts business investment and expands aggregate demand.
