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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- How does the increase of prices of goods affect the purchasing power of money?arrow_forwardK 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_forwardNo chatgpt pls only typingarrow_forward
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- How does an increase in the money supply get into the hands of consumers? What do they do with it?arrow_forwardWhat's the role of the money in the economy?arrow_forwardWhen a bank makes a loan what happens to the amount of money in deposits it holds and to the quantity of money in the economy? A. Bank deposits decrease, the quantity of money increases. B. Bank deposits do not change, the quantity of money does not change. C. Bank deposits decrease, the quantity of money does not change. D. Bank deposits do not change, the quantity of money increases. Submitarrow_forward
- Which of the following is true about banks? Select one: a. The interest rate banks charge when they lend is the same they pay for the deposits they receive. b. Banks are financial institutions through which savers can directly provide funds to borrowers. c. Typically, banks receive few but big deposits, which they then use to make many small loans. d. Through the checking accounts they facilitate, banks provide a medium of exchange.arrow_forwardDraw a graph depicting interest rates at the quantity of loanable funds d. If the Federal Reserve lowers the required reserve rate, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable funds.arrow_forwardTyped plz And Asap Thanksarrow_forward
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