In the market for money, use a graph to explain the effect of an increase in the price level on the equilibrium interest rate. 1.) Using the line drawing tool, draw either a new demand or supply curve. Properly label your curve. 2.) Using the point drawing tool, plot the new equilibrium point. Carefully follow the instructions above, and only draw the required objects. How does the change in the interest rate affect planned investment spending, consumption spending, and net exports? The change in the interest rate demonstrated above planned investment spending, consumption spending, and net exports. Interest rate 013 Real money balances M G
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- The following equations describe an economy. Y = C + I + G. C = 120 + 0.5( Y - T ). I = 100 - 10r. G = 50. T = 40. ( M/ P) d = Y - 20r. M = 600. P = 2. What are the equilibrium level of income and the equilibrium interest rate? If the government increases government spending by 45, what will be the new equilibrium level of income and equilibrium interest rate?Consider an economy with the given equations. Y=C+I+G C=106+0.6(Y−T) I=100−10r (MP)d=Y−15r G=$55 T=$35 M=$800 P=2.0 Use the relevant set of equations to derive the LM curve. Move points A and B to graph the LM curve. Calculate the equilibrium level of income (Y) and the equilibrium interest rate (r).Suppose that with the liquidity facilities and asset purchase programs, the Bank of Canada increased the money supply. How do you expect this to affect consumption and investment in equilibrium?
- In a hypothetical economy, no investment projects are undertaken when the real interest rate is 12 percent or above, 40 projects worth $1 million each are undertaken when the real interest rate is 10 percent, and 40 more projects worth $1 million each are undertaken every time the real interest rate falls by 2 percent until it reaches a value of zero. a. Draw a graph showing the investment demand curve. Plot 7 points in total using the line tool (investment demand curve) given below. Investment Demand Curve 14 Tools 12 investment de 10 8. 6. 4. 40 80 120 160 200 240 280 Investment (2017 $ million) b. If the real interest rate is 6% then $ million of investment will take place in this economy. c. If the real interest rate rises to 4% then investment (Click to select) V to $ million. Real Rate of Return and Interest (%)At its meeting ending on 2 February 2022, The Bank of England (BOE) Monetary Policy Committee (MPC) voted to increase interest rate. Consumers react this rise in the interest: rate and adjust their choices between spending today and spending tomorrow. Suppose that there are two consumers: 1) John is a saver, and he decides to increase his savings after the BOE policy: 2) Lili is a saver, and she decides to decrease her savings after the BoE policy. Use the Life-Cycle Model (LCM) to answer the following questions. a) Draw a diagram to show the optimal choice for John. Explain your answer and your diagram in detail.Use the following graphs to answer the next question. Interest Rate (%) 12 04 $75 150 225 Market Price Level AS Investment Demand Q₁ Real GDP Y Z $50 100 150 Investment ($) -AD₂ (/=$100) AD, (/=$50) AD, (/=$150) In the graphs, the numbers in parentheses near the AD₁, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment level of real GDP?
- Determine whether each of the following statements is true or false, and explain why it is true or false. Use the graph to clarify your answer. [2 x 3 marks] If the investment does not depend on the interest rate, IS curve is vertical. If there is an increase in Government expenditure IS curve will shift to the left.2. An economy is initially described by the following equations: C= 600 + 0.75(Y - T) I= 1,200 – 50i M/P = Y – 200i G= 2000 %3D T= 2000 M = 4,000 P = 2 a. Derive and graph the IS curve and the LM curve. Calculate the equilibrium interest rate and level of income. Label that point A on your graph. b. Suppose that a newly elected president cuts taxes by 20 percent. Assuming the money supply is held constant, what are the new equilibrium interest rate and level of income? What is the tax multiplier? 1 c. Now assume that the central bank adjusts the money supply to hold the interest rate constant. d. What is the new level of income? What must the new money supply be? What is the tax multiplier? e. Now assume that the central bank adjusts the money supply to hold the level of income constant. What is the new equilibrium interest rate? What must the money supply be? What is the tax multiplier?The equilibrium position for an economy is represented by the following equations: Y = C + I, + G %3D C = a + b(Y – T) T = tY Let a = 25, b = 0.8 and t = (0.3. %3D Determine the value of the multiplier for this economy. Show your working.
- Consider an economy described by the following equations:Y=C + I +GY=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rb. Calculate the equilibrium interest rate. c. Now suppose the G rises by 1,000. Compute private saving, public saving, andnational saving.d. Calculate the new equilibrium interest rate.For these 3 questions please only show the graphical response.Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10Answer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. If nominal GDP is $300 and the supply of money is $250, the equilibrium interest rate will be Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 Multiple Choice 4 percent. 10 percent. 6 percent. 8 percent. 2 percent.