MS, MS, MD M2 M, QUANTITY OF MONEY The graph above shows a decrease in the money supply. Which of the following is consistent with this change? O Contractionary Fiscal Policy is used to reduce income and increase Inflation O Expansionary Monetary Policy is used to lower interest rates and decrease Inflation O Expansionary Fiscal Policy is used to decrease income and decrease Inflation O Contractionary Monetary Policy is used to increase interest rates and decrease Inflation NOMINAL * INTEREST RATE

MS, MS, MD M2 M, QUANTITY OF MONEY The graph above shows a decrease in the money supply. Which of the following is consistent with this change? O Contractionary Fiscal Policy is used to reduce income and increase Inflation O Expansionary Monetary Policy is used to lower interest rates and decrease Inflation O Expansionary Fiscal Policy is used to decrease income and decrease Inflation O Contractionary Monetary Policy is used to increase interest rates and decrease Inflation NOMINAL * INTEREST RATE

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

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Similar questions

A decrease in the interest rate, other things beingequal, causes a (an)a. upward movement along the demand curvefor money.b. downward movement along the demandcurve for money.c. rightward shift of the demand curve for money.d. leftward shift of the demand curve for money.
Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
Consider the following IS-LM model:C=200+0.25YdI=150+0.25Y-1000iG=250T=200Real Money Demand=M/P=2Y-8000iReal Money Supply=1600a. Derive the IS relation.b. Derive the LM relation.c. Solve for equilibrium real output and interest rate and show it in a graph, draw IS and LM curves.d. Solve for values of C, G and I and verify that they add up to Y you obtained in part c.e. Now suppose that the money supply increases to M/P=1840. Solve for Y, i, C and I and describe inwords the effects of an expansionary monetary policy. Show the change in a graph.f. Set M/P to its initial value of 1600. Now suppose that government spending increases to G=400.Summarise the effects of an expansionary fiscal policy on Y, i, C. Use a graph to show the shift in ISand/or LM.
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?