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To explain:The way in which the
Concept Introduction:
The Federal Reserve manages the supply of the money and money aggregates in the economy. They increase money supply to stimulate output and employment in the economy. However, an increase in money supply also affects the price level in the economy. The Fed does this through open market purchase of U.S. government securities or by printing money. This increase in money supply results with a decrease in the interest rates. However, such money supply has major effect on the real GDP, the potential output in the economy, and the price levels.
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Chapter 15 Solutions
ECON: MACRO4 (with CourseMate, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
- K The graph shows the demand for money curve. Draw a point to show the interest rate and quantity of money demanded when the interest rate is 5 percent a year. Draw an arrow to show the effect of an increase in the interest rate above 5 percent a year. Label it 1. Draw an arrow to show the effect of a decrease in the interest rate below 5 percent a year. Label it 2. When the interest rate rises, other things remaining the same, the opportunity cost of holding money and A. rises; the demand for money decreases B. falls; the demand for money increases O C. falls; the quantity of money demanded increases OD. rises; the quantity of money demanded decreases 8- 6- 4 2- 0+ Interest rate (percent per year) 2.7 MDO 2.9 3.1 3.3 Real money (trillions of 2007 dollars) >>> Draw only the objects specified in the question. 3.5 € Garrow_forwardWhen the interest rate falls , other things remaining the same, what change occurs in the market for money?  The opportunity cost of holding money _______ and _______.   A. rises ; the demand for money decreases  B. rises ; the quantity of money demanded decreases  C. falls ; the quantity of money demanded increases  D. falls ; the demand for money increasesarrow_forwardWhat is the significance of money?arrow_forward
- How does an increase in the money supply get into the hands of consumers? What do they do with it?arrow_forwardWhich of the following is​ money?  A. A check is money because while it is in circulation the quantity of money increases by the amount of the check.  B. Deposits are​ money, checks are not​ money, and credit cards are not money.  C. A credit card is money because it allows you to take a loan at the instant you buy something.  D. Currency is money and credit cards are money because they are means of​ payment, but deposits are not money.arrow_forwardWhat's the role of the money in the economy?arrow_forward
- Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
- Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
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