Total Demand (billions of dollars) Interest Rate (percent) 12% $200 10 400 8 600 6 800 4 1,000 1,200 2 a. Graph the money demand and money supply curves. Instructions: Use the tool provided 'Money Demand' to plot the line point by point (6 points total). Use the tool provided 'Money Supply' and plot only the endpoints such that the first point touches the horizontal axis. Money Market

Total Demand (billions of dollars) Interest Rate (percent) 12% $200 10 400 8 600 6 800 4 1,000 1,200 2 a. Graph the money demand and money supply curves. Instructions: Use the tool provided 'Money Demand' to plot the line point by point (6 points total). Use the tool provided 'Money Supply' and plot only the endpoints such that the first point touches the horizontal axis. Money Market

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter15: Monetary Theory And Policy

Section: Chapter Questions

Problem 1.1P

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Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.
10 - Which of the following depends on the demand for money, which we say just in case and for this purpose?A) IncomeB) to KeynesC) to the economyD) to interestE) Investment
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Consider an economy in which the money supply consists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation all are constant at 10% per year. Output and the real interest rate are constant. Monetary data for this economy as of January 1, 2016, are as follows: Currency held by nonbank public $200 Bank reserves $50 Monetary base $250 Deposits $600 Money supply $800 a. What is the nominal value of seignorage over the year? (Hint: How much monetary base is created during the year?) b. Suppose that deposits and bank reserves pay no interest, and that banks lend deposits not held as reserves at the market rate of interest. Who pays the inflation tax (measured in nominal terms), and how much do they pay? (Hint: The inflation tax paid by banks in this example is negative.) c. Suppose that deposits pay a market rate of interest. Who pays the inflation tax, and how much do they pay?