Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter D, Problem 3QP
(a)
To determine
The effects of shortage in the market.
(b)
To determine
Describe the surplus in money market.
(c)
To determine
Describe the equilibrium in the money market.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Explain the concept of a surplus of money versus a shortage of money.
Part (i) of the figure shows the money market and the effect of a decrease in the supply of money. The corresponding sequence of events in the bond market is as follows: The ________ of money at i0 leads firms and households to ________ bonds, which leads to a(n) ________ in the price of bonds and an increase in the interest rate.
A. excess supply; buy; decrease
B. excess demand;sell;decrease
C. excess supply;buy;increase
D. excess demand; sell; increase
(Figure: A Money Market) The accompanying figure Equilibrium in the Money Market shows the money market in equilibrium at an interest rate of r2. Holding the money supply constant, which of the following might cause the interest rate in the market to decrease to r1?
A)
The inflation rate falls to historically low levels.
B)
Higher payroll taxes cause employers to pay workers cash under the table.
C)
There is a significant increase in the stock market.
D)
A recession decreases real GDP.
Chapter D Solutions
Macroeconomics
Knowledge Booster
Similar questions
- Use the following table to answer the next question. Interest Rate Transaction 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 The equilibrium interest rate is Multiple Choice 2 percent. 4 percent. 6 percent. 8 percent.arrow_forwardAssume the supply of money is fixed by the authorities. Show how the money market equilibrium interest rate rises when income increasesarrow_forwardThe following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star.arrow_forward
- Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would a. increase government spending. b. decrease the money supply. c. decrease government spending. d. increase the money supply.arrow_forwardWhat is the demand for money? When the nominal interest rate rises, does the opportunity cost of holding money increase or decrease? Does the quantity of money demanded increase or decrease? The demand for money is the relationship between the quantity of money demanded and the _______ when all other influences on the amount of money that people wish to hold remain the same. A. price of bonds B. real interest rate C. inflation rate D. nominal interest rate When the nominal interest rate rises, the opportunity cost of holding money _______ and the quantity of money demanded _______. A. falls; increases B. rises; decreases C. falls; decreases D. rises; increasesarrow_forwardThe unemployment rate has fallen below the natural rate of unemployment, and a "tight" labor market is driving wages and prices up. a.Government spending should: increase or decrease? b. taxes should increase or decrease? c.Discount Rate and Federal Funds Rate should: increase or decrease? d. Reserve requirement should increase or decrease? e. open market operation should increase or decrease?arrow_forward
- Construct the money market model and briefly explain each letters a, b, and ca. why money demand (Md) is downward slopingb. why money supply (M/P) is verticalc. how an open market purchase by the Central bank will affect the equilibrium interest ratearrow_forwardWhich of the following statements is false A. Money is not a comsumption or a capital good B. An increase in the money supply does not confer a general benefit on society C. Economic theory cannot tell us generally which groups benefit and which groups are injured by inflation D. Economic theory cannot tell us the supply of money that is proper for an economy to havearrow_forwardThe following diagram represents the equilibrium in the money market. Explain the following question with the help of the graph ( in the picture ): a) What is the equilibrium level of interest rate and quantity of money demanded and supplied? b) What would happen in the money market if the market prevailing interest rate is 8? Describe the adjustment mechanism? c) How price level affects the money demand curve? How could you reflect this change diagrammatically? d) Why the Money supply curve is vertical and independent of the interest rate? Explain? e) Suppose central bank of Bangladesh decided to use open market sale of securities. How does it affect the money supply of the economy? Explain with graph?arrow_forward
- 1. If the demand for money curve shifts from Md1 to Md0 the equilibrium interest rate will.. Increase from 5% to 10% Decrease from 7% to 5% Increase from 5% to 7% Remain at 7% 2. If the demand for money curve shifts from Md1 to Md0 and the interest rate remains at 5% there will be An equilibrium in the money market An excess demand for money An equilibrium in the bond market An excess supply of moneyarrow_forwardNeed help asap 1. Using a supply and demand diagram for each of the following scenarios, show how the market for money is affected in the long run. Explain your answer. (a) Everyone subscribes to r/WallStreetSilver, and starts investing in silver and gold. (b) Commercial banks raise their mortgage rates, even though the Bank of Canada retains a low Bank Rate. (c) The Bank of Canada prints money and mails $1,000 to every Canadian.arrow_forwardWhat is a monetary rule? What is its purpose? Illustrate and explain the implementation of a monetary rule.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc