1. Suppose that the Federal Reserve increases the money supply by 5 percent.a) Use the theory of liquidity preference to illustrate the impact of this policy on the short-runmarket for money. Do not forget to label the axes.-How did the money supply curve change?-How did the equilibrium interest rate change?b) Use the model of aggregate demand and aggregate supply (AD-AS) to illustrate the impact ofthe above interest rate change on the equilibrium quantity of output and price level in theshort run. Do not forget to label the axes.-How did the price level change?-How did the quantity of output change?

Money is a medium of exchange that is broadly acknowledged in transactions including goods,…

1. Suppose that the Federal Reserve increases the money supply by 5 percent. a) Use the theory of liquidity preference to illustrate the impact of this policy on the short-run market for money. Do not forget to label the axes. -How did the money supply curve change? -How did the equilibrium interest rate change?

1. Suppose that the Federal Reserve increases the money supply by 5 percent. a) Use the theory of liquidity preference to illustrate the impact of this policy on the short-run market for money. Do not forget to label the axes. -How did the money supply curve change? -How did the equilibrium interest rate change?

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 6PA

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5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The inflation rate O The quantity of physical capital O The size of the labor force O The price level Suppose the economy produces real GDP of $30 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to piot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. The policy will cause the natural rate of unemployment to fall , which will: Shift the long-run aggregate supply curve to the left Shift the long-run aggregate supply curve to the right Not affect…
5. The slope and position of the long-run aggregate supply curve Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply. PRICE LEVEL 132 Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $60 billion. 128 Using the purple points (diamond symbol) plot the economy's long-run aggregate supply (LRAS) curve on the graph. (?) 124 120 116 112 108 The price level 104 The size of the labor force 100 The inflation rate The quantity of physical capital 0 10 20 30 40 50 60 70 OUTPUT (Billions of dollars) 80 90 100 LRAS Suppose now the government passes a law that significantly increases the minimum wage. This change in policy will cause the natural rate of unemployment to , which will: O Shift the long-run aggregate supply curve to the left O Shift the long-run aggregate supply curve to the right O Not impact…
2. Suppose that money demand is given by M' =$Y(0.25 – i), where SY is 100. Also, suppose that the supply of money is $20. The equilibrium interest rate is _ If the central bank wants to increase i by 10 percentage points (e.g. from 2% to 12%, the actual interest rate depends on result you calculate), it should set the supply of money at
1. 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.
5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The price level O The size of the labor force O The level of technological knowledge O The quantity of physical capital Suppose the economy produces real GDP of $30 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS ti.docx ere to search op 近

4. The slope and position of the long-run aggregate supp curve Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increa in money growth will affect which of the following? Check that apply. Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $60 billion. E Using the purple points (diamond symbol) plot the economy long-run aggregate supply (LRAS) curve on the graph. 132 128 124 120 116 112 108 The inflation rate 104 The level of technological knowledge The quantity of physical capital The size of the labor force 100 0 + 10 20 30 40 50 60 70 OUTPUT (Billions of dollars) 80 90 100 LRAS Suppose now the government passes a law that significan increases the minimum wage. This change in policy will cause the natural rate of unemployment to, which will: Oshift the long-run aggregate supply curve to the right Not impact the long-run aggregate supply curve O Shift the long-run aggregate…
5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The size of the labor force O The price level O The quantity of physical capital O The level of technological knowledge Suppose the economy produces real GDP of $50 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. (?) 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 60 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to v which will: O Not affect the long-run aggregate supply curve O Shift the long-run aggregate supply curve to the right O Shift the long-run aggregate supply curve to the left In…
5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The size of the labor force O The price level O The quantity of physical capital O The level of technological knowledge Suppose the economy produces real GDP of $50 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. (?) 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to v, which will: O Not affect the long-run aggregate supply curve O Shift the long-run aggregate supply curve to the right O Shift the long-run aggregate supply curve to the left In…
2. Consider the money market model. If the current price is higher than the equilibrium price, would the money demand greater or smaller than the money supply? And how would the value of money will change in the adjustment toward the equilibrium? Decrease or Increase. Money demand(greater:smaller):Value of money (increase/decrease):
Pls help with this Suppose that the Central Bank has currently set the reserve requirements in the economy to be equal to 10%. Assume that there is no cash drain. Suppose also that in this economy there are $400 in initial deposits and $6,000 of cash. 6. Given the above, what is the total Money Supply (MS) in the economy?Now suppose that the economy’s demand for money (MD) is given by the following equation: ??=12,000−1,000∗rWhere r is the interest rate in integers (e.g. at a 2% interest rate, r = 2). 7. What is the equilibrium quantity of money (M) and interest rate (r) in this economy? Now suppose that the Central Bank wants to close an output gap in the economy, and wants to raise the interest rate by 2% to do this. Assume that the Central Bank targets the Money Supply directly. 8) If the Central Bank wants to change the Money Supply by changing the quantity of cash in the market in order to achieve this interest rate increase, how much does it need to change the quantity of cash?…
4) The Federal Reserve expands the money supply by 5 percent a)Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate. b)Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the long run. c) When the economy makes the transition from its short-run equilibrium to its new long-run equilibrium ,what will happen to the price level?
2. Consider the money market model. Suppose that the current price is higher than the equilibrium price. Answer if the money demand is greater than or smaller than the money supply and how the value of money will change in the adjustment toward the equilibrium: Decrease or Increase. Money demand: Value of money: