Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 36, Problem 6DQ
To determine
The interlink between a nation’s money supply, interest rate, investment spending, aggregate demand, real GDP , and the price level.
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D7
Suppose that people hold 17 cents out of every dollar of deposits as currency. Suppose that banks hold 13 cents out of every dollar of deposits as excess reserves. If the Fed buys $100 billion worth of Treasury securities on the open market, what is the change in the money supply? Make sure to express your answers in billions. Make sure to round your answers to the nearest 100th decimal points. For example, 24.56 for $24.56 billion.
Consider a situation where the central bank increases the money supply. equal, if nominal GDP increased by $800 billion during a time when veloc did the central bank increase the money supply? O $400 million O $200 million O $200 billion O $400 billion No new data to save. Last check
6
Assume the real interest rate increases from 5% to 6%, the interest elasticity of money demand is -0.3, and the money supply increases from 600 to 630. All else equal, what would be the percentage change of the equilibrium price level?
Chapter 36 Solutions
Economics (Irwin Economics)
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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- Since 2009, how much has been borrowed through the federal funds market? O. $787 million O. $43 billion O. $1,148 billion Incorrect O. $0arrow_forward2. Consider the demand for money curve. As we move down and to the right along the curve, the opportunity cost of holding money is increasing, so households and firms decrease their desired money holdings. is declining, so households and firms increase their desired money holdings. is increasing, so households and firms increase their desired money holdings. is declining, so households and firms decrease their desired money holdings.arrow_forward5. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. A.) What is the price level? What is the velocity of money? B.) Suppose that velocity is constant, and the economy’s output of goods and services rises by 5% each year. C.) What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? D.) What money supply should the Fed set next year if it wants to keep the price level stable? E.) What money supply should the Fed set next year if it wants an inflation rate of 10%.arrow_forward
- Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward1. Suppose that the money demand equation is (M/P)d = 600 − 75r where r is the real interest rate in percent. The money supply M is $900, and the price level P is fixed at 3. a. Solve for the equilibrium real interest rate. Mark the equilibrium interest rate and the real money supply on the money market diagram. b. Solve for the equilibrium real interest rate if M rises from $900 to $1050. Illustrate the money supply increase on the diagram in part a. Mark the new equilibrium interest rate and the new real money supply on your diagram. ( Please type your answer )arrow_forward3. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity of money?b. Suppose that velocity is constant and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant.c. What money supply should the Fed set next year if it wants to keep the price level stable?arrow_forward
- Suppose the economywide demand for money is given by: M = P(0.3Y − 25,000i). The price level P equals 3, and real output Y equals 8,000. a. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 2 percent? The nominal money supply should be set at $ . b. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 3 percent? The nominal money supply should be set at $ .arrow_forward11. Since 1990, money supply in the Japanese economy has doubled. Over the same period,nominal GDP in Japan has stayed almost constant. According to the Quantity Theory of Money,this suggests thata) the level of real GDP must have decreased.b) the level of real GDP must have increased.c) the velocity of money must have decreased.d) none of the above 13. According to the trilemma, which of the following is a potential cost of adopting a flexibleexchange rate regime?a) A country may have to restrict the size of capital flows.b) A country may su↵er from a volatile exchange rate.c) A country loses the ability to conduct independent monetary policy.d) None of the above. 14. In an open economy, if the level of net exports rises, it must be the case thata) there is an increase in saving.b) there is an increase in investment.c) the value of saving less investment must fall.d) none of the abovearrow_forwardSuppose that this year’s money supply is £500 billion, nominal GDP is £10 trillion, and real GDP is £5 trillion. 1. Suppose that velocity is constant, and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? 2. What money supply should the Fed set next year if it wants to keep the price level stable? 3. What money supply should the Fed set next year if it wants inflation of 10 percent?arrow_forward
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