ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 2.5P
Sub-part
A
To determine
whether the fed would increase or decrease the money supply.
Sub-Part
B
To determine
whether the fed should buy or sell government securities in case it uses open market operations.
Sub-Part
C
To determine
whether the interest rate and the quantity of money demanded would increase, decrease or remains unchanged.
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2- money Supply, money demand, and adjustment to monetary equilibrium
The following table shows a money demand schedule, which is the quantity of money demanded at various price level (P).
Fill in the value of Money column in the following table.
Now consider the relationship between the price level and the quantity of money that people demand. The lower price, the (More/ Less) money the typical transaction requires, and the (More/ Less) money people will wish to hold in the form of currency or demand deposits.
Assume that the Fed initially fixes the quantity of money supplied at $4 Billion.
Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
According to your graph, the equilibrium value of money is (0.25, 0.50, 0.75, 1.00) therefore the equilibrium price level is (1.00, 1.33, 2.00, 4.00).
Now, suppose that the…
Question 222
which two of the TEN PRINCIPALS OF ECONOMICS imply that fed can profoundly affect the economy? explain how these mechanisms work in 6 sentences with examples.
32 - What happens as a result of aggregate demand and aggregate supply if the money supply decreases?A) Prices fall – output increasesB) NoneC) Prices increase – output decreasesD) Prices fall – production decreasesE) Prices increase – production increases
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