Explain what happens to Money Demand when each of the following occurs: i, incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward.
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A: Answer-
a) Explain what happens to Money
i, incomes rise;
ii. the interest rate rises.
b. Use the
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- What would be the effect of an increase in money supply on aggregate demand, GDP and inflation ? Use appropriate diagram (s) to illustrate and explain your answer.What is the effect of a rise in the U.S. price level on the buying power of money? The buying power of money _______. A. increases and aggregate demand increases B. increases and the quantity of real GDP demanded increases C. decreases and the quantity of real GDP demanded decreases D. decreases and aggregate demand decreasesWhich of the following statements is true of the money supply? a) Increasing the money supply is a way of warding off an economic downturn. b) Decreasing the money supply is a way of warding off an economic downturn. c) The money supply is increased by lowering spending. d) The money supply is increased by raising taxes.
- Assume the economy of the United States is currently experiencing a recession. A. Draw a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves, and show each of the following: i. Current real output, labeled Y1, and current price level, labeled P1 ii. Full employment output, labeled Yf B. Identify 1 action the central bank could take to help the economy recover from their recession. C. Draw a correctly labeled graph of the money market and show the impact of the central bank's action identified in Part B on the nominal interest rate. D. On your graph in Part A, show the effect of the central bank's action identified in Part B on real output and price level. E. Assume there is an increase in business confidence as a result of the central bank's action. i. What will happen to the demand for capital goods? ii. Draw a correctly labeled graph of the loanable funds market and show the effect of the…Assume the economy of the United States is currently experiencing a recession. A. Draw a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves, and show each of the following: i. Current real output, labeled Y1, and current price level, labeled P1 ii. Full employment output, labeled Yf B. Identify 1 action the central bank could take to help the economy recover from their recession. C. Draw a correctly labeled graph of the money market and show the impact of the central bank's action identified in Part B on the nominal interest rate. D. On your graph in Part A, show the effect of the central bank's action identified in Part B on real output and price level. E. Assume there is an increase in business confidence as a result of the central bank's action. i. What will happen to the demand for capital goods? ii. Draw a correctly labeled graph of the loanable funds market and show the effect of the…When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the long-run effects of an increase in money supply? a)The price level decreases, but the quantity of money demanded increases b)The price level and the quantity of money demanded increases c)The price level and the quantity of money demanded decreases d)The price level increases, but the quantity of money demanded decreases
- The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Which explains correctly the sequence of effects and the effect of the cut in money supply on aggregate demand? 1. We start with the money market equilibrium. The money supply curve shifts to the right and the rate of interest rises. This will decrease real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left. 2. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will increase real investment that we can see from the Investment demand function. The AE curve will move down as investment (Ibar) declines. This will shift the AD to the left. 3. We start with the money market equilibrium. The money supply curve shifts to the left and the rate of interest rises. This will decrease real…What happens to the aggregate demand curve when the Fed reduces the money supply? a. It shifts leftward, raising real GDP and the price level b. It shifts leftward, lowering real GDP and the price level c. It shifts rightward, raising real GDP and the price levelIf the Federal Reserve wanted use an open market operation to combat a recession, what would they do, and what would its effect be? The Federal Reserve expands the money supply by 5%. Draw an aggregate supply/aggregate demand diagram to show the short run effect of this scenario. What happens to price and output? Which curve shifts? Which component of that curve accounts for the shift?
- If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change? a. The money supply increases, and aggregate demand shifts left. b. The money supply decreases, and aggregate demand shifts right. c. The money supply decreases, and aggregate demand shifts left. d. The money supply increases, and aggregate demand shifts right.Suppose that expanded credit card availability makes people demand less money at every value of money. a) Using the graph of the money market, show and explain how this change will impact the equilibrium value of money and the equilibrium price level in the economy (do not forget to label the axes). Using the graph of the money market, show and explain the action the Federal Reserve could take to return the economy to its initial price level.Explain how an increase in a price level will affect the demand for money and the aggregate demand. Use relevant graphs to support your answer.
