please answer in text form and in proper format answer with must explanation , calculation for each part and steps clearly KIn the figure to the right, when the money supply increased from MS, to MS2, the equilibriuminterest rate fell from 4% to 3%. Why?7-OA. The Fed was selling securities so rates were falling.OB. The Fed was pursuing contractionary policies.OC. Demand for money was increasing.OD. The Fed was buying securities in pursuit of expansionary monetary policies.6-Interest rate, i (%)MS₁ MS2G5-A4-3-2-1-0+800850BMD900950 1,000 1,050 1,100Quantity of Money, M ($billions)

The graph shows a money market equilibrium. The vertical axis shows the interest rate (i) and the…

Answered: K In the figure to the right, when the…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter15: Monetary Theory And Policy

Section: Chapter Questions

Problem 2.5P

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19. Monetary policy that reduces the money supply will cause the interest rate to and output to which will cause investment to by an amount than the initial change in investment. a. Decrease; increase; increase; less b. Increase; increase; decrease; greater c. Increase; decrease; decrease; greater d. Decrease; increase; increase; less 20. If expansionary fiscal policy in the form of an increase in government spending causes interest rates to rise, we would expect investment to increase in output. This offset is referred to as a. Increase; multiplier b. Decrease; crowding out c. Increase; crowding in d. Decrease; multiplier offsetting in part the
Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
2. Suppose that Md = -80i + 0.7Y and that BSP fixes Ms at Php50 B and the national income is to be achieved at P80B. A. Determine the equilibrium interest rate and equilibrium quantity of money that is desirable so as not to cause any surplus or shortage of money. Show supporting calculation. B. Illustrate in a graph the money demand and supply and highlight the equilibrium point.
Price stability: Suppose you are the head of the central bank and your mandateis to maintain the price level at a constant value. Explain what you would doto the money supply in response to each of the following events:(a) Real GDP increases by 4% during a boom.(b) Real GDP declines by 1% during a recession.(c) Real GDP is growing at 3% per year.(d) Te velocity of money increases by 2%.(e) Te velocity of money declines by 1%.
6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y– 100i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate, r, is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If Y= 1000, M=300, and the growth rate of nominal money= 1%, what must i and P be? b. If Y=1000, M=300, and the growth rate of nominal money is 2%, what must i and P be?
With a constant rate of inflation and an increasing money supply, interest rates can remain stable because... a. The rising price level is increasing the demand for money, offsetting the impact of the rising money supply. O b. The declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise. Oc. The rising price level is decreasing the demand for money which is pushing interest rates up. O'd. The declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise. O e. The money transmission mechanism does not apply in a situation of sustained inflation.
Hyperinflation occurs when the government runsa large budget _________, which the central bankfinances with a substantial monetary _________.a. deficit; contractionb. deficit; expansionc. surplus; contractiond. surplus; expansion
QUESTION 24 Using the simple monetary rule Rt-r%3Dm(n,-11), if n=0.5 and the inflation rate is 2 percent below the target inflation rate, the Federal Reserve will OA raise the marginal product of capital by 1 percent. OB.lower the target rate by 2 percent. O C. lower the interest rate by 1 percent. OD. lower the marginal product of capital by 1 percent. O E. raise he interest rate by 1 percent. 12 LG HARUNA U.S.ARMY ana UPE
15. Consider the economy of Farland. C = 200 + 0.75(Y – T) I = 200 – 25r M = Y – 100r M = 1000; P = 2 G = 100; T = 100 d P a. Find equilibrium interest rate and the equilibrium level of income Y b. With the initial values for monetary and fiscal policy, suppose that the price level rises from 2 to 4. What happens? What are the new equilibrium iaterest rate and level of income? c. Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if government increases its purchaşes or National Bank provides more money supply?
Assume that money demand is a function of real interest rate and income. When the central bank announces that it will sell government bonds one year from now, which of the following events is/are likely to happen in the current year? (i) Lower price level (ii) Lower nominal interest rate (iii) Lower demand for real money balances O a. Only (ii) and (iii). O b. O c. O d. Only (i) and (ii). (i), (ii), and (iii) are all going to happen in the current year. Only (iii).
2. Suppose that Md = –80i + 0.7Y and that BSP fixes Ms at Php50 B and the nationalincome is to be achieved at P80B.A. Determine the equilibrium interest rate and equilibrium quantity of money that isdesirable so as not to cause any surplus or shortage of money. Show supportingcalculation.B. Illustrate in a graph the money demand and supply and highlight the equilibriumpoint.
Question: When taxes are increased and the central bank stops income decline by ....... the money supply, then investment and consumption O a reducing / falls / falls. O b. reducing/ falls /rises. * reducing/rises/ falls. d. raising / rises/ rises. raising/ rises/ falls.

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