Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 3PA
Subpart (a):
To determine
Increase in demand for money.
Subpart (b):
To determine
Increase in demand for money.
Subpart (c):
To determine
Increase in demand for money.
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Students have asked these similar questions
Suppose a wave of negative “ animal spirits” overruns the economy, and people become pessimistic about the future.What happens to aggregate demand? If the Fed wants to stabilize aggregate demand, how should it alter the money supply? If it does this, what happens to the interest rate? Why might the Fed choose not to respond in this way?
Suppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money.
Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate will , which causes aggregate demand to .
If instead the Fed wants to stabilize aggregate demand, it should the money supply by government bonds.
. (Money Supply Versus Interest Rate Targets) Assume that the economy’s real GDP is growing.
What will happen to money demand over time?
If the Fed leaves the money supply unchanged, what will hap- pen to the interest rate over time?
If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time?
What would be the effect of the policy described in part (c) on the economy’s stability over the business cycle?
Chapter 21 Solutions
Principles of Macroeconomics (MindTap Course List)
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Similar questions
- What happens to the aggregate demand curve when the Fed reduces the money supply? a. It shifts leftward, raising real GDP and the price level b. It shifts leftward, lowering real GDP and the price level c. It shifts rightward, raising real GDP and the price levelarrow_forwardSuppose the Fed decides to implement expansionary monetary policy. This will likely result in a _____ in the money supply and a _____ in interest rates. increase or decrease?arrow_forward
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