Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 12, Problem 3QR
To determine
The impact of decrease in the money supply on interest rate, income, consumption, and investment.
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Q8
Which of the following statements is consistent with a given (i.e., fixed) IS curve?
Select one:
a. A reduction in the interest rate causes money demand to decrease.
b. A reduction in the interest rate causes investment spending to increase.
c. An increase in government spending causes an increase in demand for goods.
d. A reduction in the interest rate causes an increase in the money supply.
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- The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $45 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.arrow_forwardWhich of the following will cause the demand curve for money to shift to the right? (a) An increase in real Gross Domestic Product (GDP).(b) A decrease in the repo rate.(c) An increase in the quantity of money available.(d) A decrease in the quantity of money available.arrow_forwardAccording to Keynes, what are the three reasons individuals hold money? Provide a brief explanation of each.arrow_forward
- If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate, then:arrow_forwardAccording to Keynes, which of the following information about the money market is wrong?A) The cost of giving up liquidity is interest.B) The money supply graph is steep.C) The equilibrium interest rate drops as a result of the expansive money supply.D) When the interest rate is above the equilibrium interest rate, a money supply surplus occurs in the economy.E) There is an inverse relationship between money demand and income.arrow_forwardBy using graphs, show and explain how an increase in money supply can affect the goods market by taking the link between two markets into account.arrow_forward
- How does an increase in price level affect the money market? a. Money demand increases b. Money supply decreases c. Money demand decreases d. Money supply increasesarrow_forwardWhat are the effects of an increase in the current capital stock on real interest rate, aggregate output, employment, the real wage, consumption, and investment?arrow_forwardBy using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate? a)A decrease in the price level b)An increase in the discount rate c)A decrease in the level of aggregate outputarrow_forward
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