The original interest rate is at 2%. Suppose the central bank decreased the money supply. Which of the following new interest rate is possible due to the change in the level of money supply? a. 1.5% b. 1.0% c. 4.0%
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- 2. What is the relationship between money demand and interest rates? What happens when the interest rate reaches the zero lower bound?16. When the supply for money increases and the demand for money reduces, there will be * A fall in the level of prices An increase in the rate of interest A fall in the level of demand O A decrease in the rate of interest1. 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.
- 7:41 1 E Initial Questions 3 - Spring 2021... ••• Figure 15-2 Interest MS2 MS1 rate, i 4% B 3 A MD Quantity of money (billions of dollars) 900 950 18) Refer to Figure 15-2. In the figure above, the move point B in the money market would be caused by A) an increase in the price level. B) a decrease in real GDP. C) an open market sale of Treasury securities by the Fec D) a decrease in the required reserve ratio by the Federa2 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.2. Similarly asking. what are the two reasons that people want to hold money? In other words, what are the two types of demand for money? How are they related to the GDP and the interest rates? People want to hold money for transactions purposes and as a form of liquid assets. Thus, economists talk about a t .. demand (D.) for money and an a The Di is believed to have a (direct, inverse ) relationship with GDP and the level of income, but is thought to be largely ( dependent, independent ) of interest-rate fluctuations. The Da is believed to be largely ( dependent, independent ) of the level of GDP, but is inversely related to the interest rate. demand for money (Da).
- This question asks how the money market graph is affected by a specific event. Note that the money market graph is the graph with the money supply and money demand curves If regulation is passed that makes it more difficult for consumers to withdraw money from existing savings accounts. then how is the money market graph affected? a. increase in equilibrium interest rates, and increase in the equilibrium quantity of money O b. decrease in equilibrium interest rates, and decrease in the equilibrium quantity of money O c. decrease in equilibrium interest rates, and increase in the equilibrium quantity of money Od increase in equilibrium interest rates, and decrease in the equilibrium quantity of money O e no change in equilibrium interest rates, and no change in the equilibrium quantity of moneySuppose the Federal Reserve needs to bring inflation under control and decides to raise the interest rate by 1 point. Use the graph below to decide on the appropriate course of action if the reserve requirement is 0%, but banks like to hold 10% of deposits as reserves and the public likes to hold 3% of their money as cash. i 5% 4% MA $1250 $1600 O Buy $45.5 billion in bonds O Sell $350 billion in bonds Buy $2692.30 billion in bonds Buy $26.92 billion in bonds O Sell $45.5 billion in bonds O Sell $26.92 billion in bonds MB O Buy $350 billion in bonds D Money QMoney (billions)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%?
- 35. Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? A. An increase in government spending and an open-market sale of securities by the central bank. B. A decrease in taxes and an open-market purchase of securities by the central bank. C. An increase in taxes and an increase in the discount rate. D. An open-market purchase of securities by the central bank and a decrease in the reserve requirement.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…2. Do you remember the scenario of injecting money into the economy via helicopter? Now, assume the opposite scenario: Government has taken out half of the cash money those the citizen of a country used to hold. Explain with a graph what will be the impact of this action taken by the government.
