Figure 31-3 On the following graph, MS represents the money supply and MD represents money demand. 0.45 MS, MS 5000 9000 QUANTITY OF MONEY 9 Refer to Figure 31-3. At the end of the first year, the relevant money-supply curve was the one labeled MS. At the end of the second year, the relevant money-supply curve was the one labeled MS2- Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year? 8.3 percent -33 percent 33 percent -25 percent

Figure 31-3 On the following graph, MS represents the money supply and MD represents money demand. 0.45 MS, MS 5000 9000 QUANTITY OF MONEY 9 Refer to Figure 31-3. At the end of the first year, the relevant money-supply curve was the one labeled MS. At the end of the second year, the relevant money-supply curve was the one labeled MS2- Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year? 8.3 percent -33 percent 33 percent -25 percent

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 8TY

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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. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD)). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. ? PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD₁ 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 116 AD₂ AD₂
Figure 21. The graph on the left shows a money market with the interest rate on the vertical axis and the quantity of money on the horizontal axis. The graph on the right is related to the money market graph and shows an aggregate demand (AD) with the price level on the vertical axis and quantity of output on the horizontal axis "2 "1 MS MD2 MD₁ 1 P₂ P₁ AD 1₂ ₁ Refer to Figure 21. The changes on the two graphs are related. Which of the following is a correct explanation of the movement of the economy from point Y1 to point Y2. The Federal Reserve's expansionary monetary policy shifts the demand for money from MD1 to MD2. The resulting increase in the interest rate causes Y to decrease from Y1 to Y2. The rise of the price level from P1 to P2 leads to an increase in the demand for money represented by the rightward shift of the money demand curve from MD1 to MD2. The resulting rise of the interest rate causes Y to decrease from Y1 to Y2. A fall in the price level from P2 to P1 causes an…
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Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. MS₁ MS₂ NI 10,000 15,000 0.5 0.33 MD Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS 2, then a. when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. Ob. when the money market is in equilibrium, one unit of goods and services sells for 33 cents. Oc. there is an excess demand for money if the value of money in terms of goods and services is 0.5. Od. All of the above are correct.
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Calculate what happens to nominal GDP if velocityremains constant at 4 and the money supply increasesfrom $250 billion to $375 billion