The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixesthe quantity of money supplied.Suppose the price level increases from 150 to 175.Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.(?12Money Supply10Money DemandMoney SupplyMoney Demand1015202530MONEY (Billions of dollars)After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will bev than the quantity of moneysupplied by the Fed at this interest rate. People will try totheir money holdings. In order to do so, people willbonds and otherinterest-bearing assets, and bond issuers will find that theyequilibrium at an interest rate of- interest rates until the money market reaches its new%.The following graph shows the economy's aggregate demand curve.Show the impact of the increase in the price level by moving the point along the curve or shifting the curve.(?300Aggregate Demand250200150100Aggregate Demand50102030405060OUTPUT (Billions of dollars)The change in the interest rate that you found previously will cause residential and business investment spending to , leadingtoin the quantity of output demanded in the economy.PRICE LEVEL

Investors should expect a higher interest rate or premium on assets with long-term maturities that…

Money Demand 2 5 10 15 20 25 30 MONEY (Billions of dollars) After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will be v than the quantity of money supplied by the Fed at this interest rate. People will try to v their money holdings. In order to do so, people will v bonds and other interest-bearing assets, and bond issuers will find that they v interest rates until the money market reaches its new equilibrium at an interest rate of %. The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. 300 250 Aggregate Demand 200 150 100 Aggregate Demand 50 10 20 30 40 50 60 OUTPUT (Billions of dollars) The change in the interest rate that you found previously will cause residential and business investment spending to v , leading to in the quantity of output demanded in the economy. PRICE LEVEL.

Money Demand 2 5 10 15 20 25 30 MONEY (Billions of dollars) After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will be v than the quantity of money supplied by the Fed at this interest rate. People will try to v their money holdings. In order to do so, people will v bonds and other interest-bearing assets, and bond issuers will find that they v interest rates until the money market reaches its new equilibrium at an interest rate of %. The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. 300 250 Aggregate Demand 200 150 100 Aggregate Demand 50 10 20 30 40 50 60 OUTPUT (Billions of dollars) The change in the interest rate that you found previously will cause residential and business investment spending to v , leading to in the quantity of output demanded in the economy. PRICE LEVEL.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter3: Supply And Demand: Theory

Section: Chapter Questions

Problem 9WNG

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