(Figure: A Money Market) The accompanying figure Equilibrium in the Money Market shows the money market in equilibrium at an interest rate of r2. Holding the money supply constant, which of the following might cause the interest rate in the market to decrease to r1? A)The inflation rate falls to historically low levels. B)Higher payroll taxes cause employers to pay workers cash under the table. C)There is a significant increase in the stock market. D)A recession decreases real GDP. MoneyInterstrate, rMoney demandcurve,, MDQuantity of money

Monetary policy: Monetary policy is the tool in the hands of the central bank of a country which…

Answered: Money Interst rate, r Money demand…

Business

Economics

Money Interst rate, r Money demand curve, , MD Quantity of money

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 4QP

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

(Figure: A Money Market) The accompanying figure Equilibrium in the Money Market shows the money market in equilibrium at an interest rate of r₂. Holding the money supply constant, which of the following might cause the interest rate in the market to decrease to r₁?
	A)	The inflation rate falls to historically low levels.
	B)	Higher payroll taxes cause employers to pay workers cash under the table.
	C)	There is a significant increase in the stock market.
	D)	A recession decreases real GDP.

Money
Interst
rate, r
Money demand
curve,
, MD
Quantity of money

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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