EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 34, Problem 1P
Subpart (a)
To determine
Demand, Supply and Equilibrium in the Money Market .
Subpart (b)
To determine
Demand, Supply and Equilibrium in the Money Market.
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In which of the following situations would you prefer to be the lender?
1) Expected inflation rate is 7 percent and the interest rate is 9 percent
2) The interest rate is 25 percent and the expected inflation rate is 50 percent.
3) The interest rate is 13 percent and the expected inflation rate is 15 percent.
O 4) The interest rate is 4 percent and the expected inflation rate is 3 percent.
O 5) Expected inflation rate is 1 percent and the interest rate is 4 percent
O6) None of the answers are correct
INTEREST RATE
12
10
co
+
2
O
0
20
Money Supply
known as the
Money Demand
40
60
80
MONEY (Billions of dollars)
100
120
Money Demand
Money Supply
Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the
changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to
by
Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to
by
at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is
effect.
Figure 30-3
On the following graph, MS represents the money supply and MD represents money demand.
O 2.0.
O 14.3.
O 2.9.
VALUE OF MONEY
O 0.35.
0.35
MS,
8000
MS₂
Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also
suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium,
then the velocity of money is approximately
13000
QUANTITY OF MONEY
MD
Chapter 34 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 34.1 - Prob. 1QQCh. 34.1 - Prob. 2QQCh. 34.1 - Prob. 3QQCh. 34.1 - Prob. 4QQCh. 34.5 - Prob. 1QQCh. 34.5 - Prob. 2QQCh. 34.5 - Prob. 3QQCh. 34.5 - Prob. 4QQCh. 34.6 - Prob. 1QQCh. 34.6 - Prob. 2QQ
Ch. 34.6 - Prob. 3QQCh. 34.6 - Prob. 4QQCh. 34 - Prob. 1DQCh. 34 - Prob. 2DQCh. 34 - Prob. 3DQCh. 34 - Prob. 4DQCh. 34 - Prob. 5DQCh. 34 - Prob. 6DQCh. 34 - Prob. 7DQCh. 34 - Prob. 8DQCh. 34 - Prob. 1RQCh. 34 - Prob. 2RQCh. 34 - Prob. 3RQCh. 34 - Prob. 4RQCh. 34 - Prob. 5RQCh. 34 - Prob. 6RQCh. 34 - Prob. 7RQCh. 34 - Prob. 8RQCh. 34 - Prob. 9RQCh. 34 - Prob. 1PCh. 34 - Prob. 2PCh. 34 - Prob. 3PCh. 34 - Prob. 4PCh. 34 - Prob. 6PCh. 34 - Prob. 7P
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Similar questions
- 2. Suppose that the money market can be depicted in the graph below. Interest rate (M/P)² (M³/P)⁰ (M³/P)1 H A K O B C O E L3 L1 L2 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume tha the price level does not change. The original equilibrium is at point O. Suppose that the government lowered income taxes so that consumers had more disposable income. Briefly describe how you reached that conclusion. Identify the new equilibrium point and what happens to interest ratesarrow_forwardSuppose a customer makes a $2,280 cash withdrawal from Bank A. If the reserve requirement was total decrease in the money supply in the 6 percent, the deposit would ultimately lead to a economy, if all banks in the system lend out 100 percent of their excess reserves. O $2,143.20 O $2,280 O $28,500 O $35,720 $38,000arrow_forward1. Suppose that the money market can be depicted in the graph below Interest rate (M/P)² (M³/P)⁰ (M³/P)¹ G K A O B C O E L3 L1 12 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume that the price level does not change. The original equilibrium is at point O. Suppose that the Federal Reserve board lowered the reserve requirement for commercial banks. Briefly describe how you reached that conclusion. ( Identify the new equilibrium point and explain what happens to interest rates.arrow_forward
- If the money supply is $60 billion, the velocity of money is 7, and real GDP is $240 billion, then the price level equals: 1.75 O 0.57 1.50. O 4 O 1.25arrow_forward4-2 Module Four Homework LO 5 166 PIE To use money growth as a short-term monetary policy instrument, a central bank must belleve that Multiple Choice Saved there is a stable link between the monetary base and the rate of inflation only money matters there is an unpredictable relationship between money aggregates and inflation the deposit expansion multiplier is volatile and unpredictablearrow_forwardThe equation of exchange is given by MXV = PxQ, where M is the money supply, V is the velocity of money, P is the economy's price level, and Q is Real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 2 12 REAL GDP (Trillions of dollars) AD O AS 2 ?arrow_forward
- MSo MS, 10 2 MD 3.0 3.1 3.2 3.3 3.4 3.5 Real money (trillions of 2000 dollars) The figure above illustrates the effect of 1) a decrease in the required reserve ratio. O 2) an increase in the required reserve ratio. O 3) a rise in the discount rate. O 4) a Fed open market sale of government securities. Interest rate (percent per year)arrow_forwardThe income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is nj = -0.02. Suppose that the central bank increases the money supply by 5%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate? O -0.3 (or -30%) O 0.3 (or 30%) O-0.1 (or -10%) O 0.1 (or 10%)arrow_forwardCash: $129.25 billion Checking deposits: $207.4 billion Saving accounts: $273.5 billion Small denomination time deposits: $27.3 billion Bank reserves held at the Fed: $43.0 billion Suppose that in a certain economy, the above are the only forms of money. How big is the monetary base (MB)? O a. $508.20 billion O b. $364.15 billion O c. $610.15 billion O d. $316.50 billion O e. $172.25 billion O f. $653.15 billionarrow_forward
- The reserve requirement is 10%. Suppose that the Fed sells $100,000 worth of U.S. government securities from a bond dealer, electronically debiting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction on the money supply? O A. The money supply decreases by $1,000.000. O B. The money supply decreases by $100,000. O C. The money supply decreases by $90,000. O D. There is no change in the money supply. O E. None of the above.arrow_forwardd. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggrega supply.arrow_forwardQUESTION 1 If the reserve ratio is 5% then the money multiplier is? O 20; This means that for every dollar deposited into a bank account, the money supply decreases by $20. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $20. O 2. This means that for every dollar deposited into a bank account, the money supply decreases by $2. O 20. This means that for every dollar deposited into a bank account, the money supply increases by $2.arrow_forward
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