ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408738
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 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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Question 13 (1 point)
Suppose the supply of money, measured by M1, is $3.0 trillion, output, measured by real GDP, is
$18.7 trillion, and the velocity of money is 7.1. Suppose the supply of money increases to $3.7
trillion but GDP and the velocity of money do not change. What is the percent by which prices
change? Provide your answer as a percentage rounded to two decimal places. Do not include
any symbols, such as "$," "," "%," or "," in your answer.
Your Answer:
Answer
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 levels (P).
Fill in the Value of Money column in the following table.
Quantity of Money Demanded
Price Level (P)
Value of Money (1/P)
(Billions of dollars)
1.00
2.0
1.33
2.5
4.0
2.00
4.00
8.0
Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the
Y money the typical transaction requires, and the
y money people will
wish to hold in the form
currency or demand deposits.
37.
Supply-side economics is the school of thought that advocates the use of
A)
monetary policy to stimulate long-run aggregate supply.
B)
fiscal policy to stimulate long-run aggregate demand.
C)
monetary policy to stimulate short-run aggregate demand.
D)
fiscal policy to stimulate long-run aggregate supply.
Chapter 15 Solutions
ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
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Similar questions
- 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 levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 0.80 1.25 2.0 1.00 1.00 2.5 1.33 0.75 4.0 2.00 0.50 8.0 mon Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the more the typical transaction requires, and the more 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. 2.00 O 1.75 MS₁ 1.50 1.25 Money Demand 1.00 0.75 MS₂ 0.50…arrow_forwardPRICE LEVEL INTEREST RATE (Percent) 4.0 5. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 5.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 7.5 7.0 Money Demand 35 0.1 02 Money Supply 04 05 06 0.7 0.0 03 MONEY (Trio of dox) New MS Curve + New Equilibrium ? Suppose the Fed announces that it is raising its target interest rate by 50 basis points, or 0.5 percentage points. To do this, the Fed will use open- market operations to, the ▼money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money supply…arrow_forwardSubject : PRINCIPLES OF MACROECONOMICS Q1. Explain what are the lags in macroeconomic policies. Do these lags have more effect on monetary policy or fiscal policy and why?arrow_forward
- 8. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. 10 The current tax system acts as an automatic stabilizer. Which of the following are examples of automatic stabilizers? Check all that apply. Corporate income taxes Personal income taxes The federal funds ratearrow_forward8. Using policy to stabilize the economy The government possesses the tools necessary to influence the output level in the short run through use of monetary and fiscal policy. However, there is some debate regarding whether the government should attempt to stabilize the economy. Which of the following statements regarding the debate over stabilization policy are correct? Check all that apply. Opponents of active stabilization policy believe that significant time lags in both fiscal and monetary policy often exacerbate economic fluctuations. Advocates of active stabilization policy believe that the government can adjust monetary and fiscal policy to counteract waves of excessive optimism and pessimism among consumers and businesses. Advocates of active stabilization believe that implementation lags for fiscal and monetary policy do not exist. Advocates of active stabilization believe that automatic stabilizers have no effect on aggregate demand. Which of the following policies are…arrow_forward8. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. Businesses make investment plans many months in advance. Which of the following are examples of automatic stabilizers? Check all that apply. The discount rate Unemployment insurance benefits The federal funds ratearrow_forward
- 138.) Austrian economists are worried about monetary policy that increases the money supply because An increase in the money supply causes consumers to borrow more - potentially too much more - in the short-run (overconsumption) An increase in the money supply reduces savings and increases future income available for new products An increase in the money supply causes investors to invest in projects that have higher expected rates of return (malinvestment) all of the above are correctarrow_forward10 Within the Keynesian system explain the following: (a) the relationship between the effectiveness of monetary policy and the interest elasticity of investment. Will monetary policy be more or less effective the higher the interest elasticity of investment demand? Now explain the relationship between the effectiveness of fiscal policy and the interest elasticity of investment demand. (b) the relationship between the effectiveness of monetary policy and the interest elasticity of money demand. Will monetary policy be more or less effective the higher the interest elasticity of money demand? Now explain the relationship between fiscal policy and the interest elasticity of money demand.arrow_forward? 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 levels (P). Fill in the Value of Money column in the following table. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 kkkk Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money people will wish to hold in the form of currency or demand deposits. typical transaction requires, and the Assume that the Fed initially fixes the quantity of money supplied at $2.5 billion. money the Oct 9 11:59 Sarrow_forward
- 8. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. The current tax system acts as an automatic stabilizer. Businesses make investment plans many months in advance. Which of the following are examples of automatic stabilizers? Check all that apply. O Personal income taxes Unemployment insurance benefits Corporate income taxesarrow_forward11) The economy is in an expansion, risking inflation. Which of the following lists contains things policymakers could do to try to slow the expansion? increase the money supply, decrease taxes, increase government spending decrease the money supply, increase taxes, decrease government spending increase the money supply, increase taxes, increase government spending increase the money supply, increase taxes, decrease government spendingarrow_forwardnot copy paste Q)What do you mean by monetary and fiscal policy? What are the similarities and differences between fiscal policy and monetary policy? What are the three goals of fiscal and monetary policy? Discuss what type of fiscal and monetary policy currently government of Pakistan adopted and why?arrow_forward
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