3 1 The graph below illustrates the money demand and investment demand for the economies of Pabst and Kokanee. Pabst Kokanee a. If money supply is increased by 25, what will be the new interest rate? Round your answers to one decimal place. Pabst: % Kokanee: % b. What will be the increase in investment spending as a result of this new interest rate? Pabst: Kokanee: c. If the multiplier is 2 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? PabstKokanee 10 (110.1.5) 70 80 90 100 110 120 Quantity of money 70 80 90 100 110 120 130 Quantity of money MD MS 圈圈 MD MS Kokanee Interest rate 10 8 2 6 5 4 3 2 Interest rate 1 6 S 4 3 2 10 20 30 40 50 60 70 80 90 100 Quantity of investment 10 20 30 40 50 60 70 80 90 100 Quantity of investment E E

3 1 The graph below illustrates the money demand and investment demand for the economies of Pabst and Kokanee. Pabst Kokanee a. If money supply is increased by 25, what will be the new interest rate? Round your answers to one decimal place. Pabst: % Kokanee: % b. What will be the increase in investment spending as a result of this new interest rate? Pabst: Kokanee: c. If the multiplier is 2 in each economy, what will be the increase in GDP? Pabst: Kokanee: d. In which economy would monetary policy be more effective in closing a recessionary gap? PabstKokanee 10 (110.1.5) 70 80 90 100 110 120 Quantity of money 70 80 90 100 110 120 130 Quantity of money MD MS 圈圈 MD MS Kokanee Interest rate 10 8 2 6 5 4 3 2 Interest rate 1 6 S 4 3 2 10 20 30 40 50 60 70 80 90 100 Quantity of investment 10 20 30 40 50 60 70 80 90 100 Quantity of investment E E

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 5PA

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