Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 16.1, Problem 4QQ
To determine
Equilibrium interest rate.
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All else equal, suppose the interest rate rise from 3% to 3.5%. What will happen in the supply of money?
a. Shifts to the right.
b. Shifts to the left.
c. An upward movement along the supply curve.
d. An downward movement along the supply curve.
e. The supply will remain unchanged.
Suppose that the economy has the following money supply and demand equations:
Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?
Suppose that the economy has the following money supply and demand equations:
Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.2. Assume that a particular bank has excess reserves of Php800,000 and checkabledeposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank’sactual reserves?3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider thefollowing transactions: Owners of the bank sold shares of stocks to the public (which includes owners’equity) amounting to P1,000,000. To fully…
Chapter 16 Solutions
Macroeconomics
Ch. 16.1 - Prob. 1QQCh. 16.1 - Prob. 2QQCh. 16.1 - Prob. 3QQCh. 16.1 - Prob. 4QQCh. 16.4 - Prob. 1QQCh. 16.4 - Prob. 2QQCh. 16.4 - Prob. 3QQCh. 16.4 - Prob. 4QQCh. 16.5 - Prob. 1QQCh. 16.5 - Prob. 2QQ
Ch. 16.5 - Prob. 3QQCh. 16.5 - Prob. 4QQCh. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Prob. 3DQCh. 16 - Prob. 4DQCh. 16 - Prob. 5DQCh. 16 - Prob. 6DQCh. 16 - Prob. 7DQCh. 16 - Prob. 8DQCh. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1PCh. 16 - Prob. 2PCh. 16 - Prob. 3PCh. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Prob. 6PCh. 16 - Prob. 7P
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- #16 [MUST SHOW WORK] Suppose the Bank of Canada uses open market operations to raise the overnight rate. As a result the _____________. (Draw a graph to show your work.) Select one: A. demand for money decreases B. quantity of money supplied increases C. demand for money increases D. supply of money decreases E. supply of money increasesarrow_forward2 Which of the following will increase the amount of moeny one wishes to hold? a) an increase in the interest rate increase b) a reduction in the interest rate increase c) a reduction in income d) none of the above 1.5 At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that: a) the price of bonds will tend increase. b) the price of bonds will tend to fall. c) production equals demand. d) the goods market is in equilibrium.arrow_forwardThe opportunity cost of holding money Answer decreases when the interest rate increases, so people desire to hold more of it. decreases when the interest rate increases, so people desire to hold less of it. increases when the interest rate increases, so people desire to hold more of it. increases when the interest rate increases, so people desire to hold less of it. Question 39 If there is excess money supply, people will Answer deposit more into interest-bearing accounts, and the interest rate will fall. deposit more into interest-bearing accounts, and the interest rate will rise. withdraw money from interest-bearing accounts, and the interest rate will fall. withdraw money from interest-bearing accounts, and the interest rate will rise.arrow_forward
- 7. As the interest rate ________, the opportunity cost of holding money ________ and individuals chooseto hold________ money. (4 marks)A increases, increases, moreB decreases, decreases, moreC increases, decreases, lessD decreases, increases, morearrow_forwardWhat is the basic determinant of ( a ) the transactions demand and (b) the asset demand for money? Explain how these two demands can be combined graphically to determine total money demand. How is the equilibrium interest rate in the money market determined? Use a graph to show the impact of an increase in the total demand for money on the equilibrium interest rate (no change in money supply). Use your general knowledge of equilibrium prices to explain why the previous interest rate is no longer sustainable.arrow_forwardWhy do the supply of money and the volume of bank loans both increase or decrease at the same time? Context: The supply of money and the volume of bark loans both increase or decrease at the same. Time because issuing new bank loans to the money supply, while calling in existing bank loans reduces the money supply.arrow_forward
- 2)The Money Demand curve is __________ sloped because an increase in the interest rate leads to _________ a. positively sloped; a decrease in the opportunity cost of holding money. b. positively sloped; an increase in the opportunity cost of holding money. c. negatively sloped; a decrease in the opportunity cost of holding money. d. negatively sloped; an increase in the opportunity cost of holding money.arrow_forwardQ.1.5 Which one of the following statements is NOT true? (a) Money is the most liquid asset.(b) Money is a store of value.(c) Money is a unit of account.(d) Money is another term for income.Q.1.6 Which of the following will cause the demand curve for money to shift to theright?(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.Q.1.7 A budget deficit occurs when: (a) there is an increase in taxation.(b) government spends less than is generated by taxation.(c) government spending is very high.(d) Government spends more than is generated by taxation.arrow_forwardThe money demand market is currently in equilibrium with MS = MD and the equilibrium interest rate. Now suppose that there is an increase in the price level. this will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate. Select one: a. a decrease; a rise b. no change; a rise c. no change; a fall d. an increase; a fall Please explainarrow_forward
- Interest Rate Transactions Demand for Money Asset Demand for Money Money Supply 2% $220 $300 $460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Based on the given table, an increase in the money supply of $20 billion will cause the equilibrium interest rate to Multiple Choice fall by 4 percentage points. fall by 2 percentage points. Correct rise by 4 percentage points. rise by 2 percentage points.arrow_forward24. If the economy is at potential output, and the Fed increases the money supply, in the short run, the likely result will be a(n) _____ in investment and a(n) _____ in consumer spending. increase; decrease decrease; increase increase; increase decrease; decrease 26. Suppose that a typical basket of goods is now less expensive than it used to be. All else equal, we would expect: the demand curve for money to shift outward. a downward movement along a fixed money demand curve. the demand curve for money to shift inward. an upward movement along a fixed money demand curve.arrow_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_forward
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