The Fed increases the discount rate. As a result, ceteris paribus, the equilibrium interest rate will: a) not change b) decrease c) be ambiguous d) increase
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- Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2. (a) What is the equilibrium interest rate?(b) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?Applied Problems on Monetary Policy and Interest Rates 1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate).When the Fed buys bonds (or bond options) on a larger scale (than before) from private banks, ceteris paribus Group of answer choices A) the money supply tends not to change. B) it tends to cause deflation. C) the money supply tends to decrease. D) aggregate demand tends to shift left. E) the money supply tends to increase.
- The speculative demand for money a. will always increase proportionally to the precautionary demand for money b. is affected by changes in equity yields but not by interest rate changes on bank deposits c. can clearly be separated from money demand for transaction since the latter is not affected by interest rate changes d. is almost always close to zero since asset holders try to avoid holding money e. none of the aboveApplied Problems on Monetary Policy and Interest Rates 1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate).In which of the following situations would you prefer to be borrowing?A) The interest rate is 2 percent and the expected inflation rate is 4 percent.B) The interest rate is 4 percent and the expected inflation rate is 1 percent.C) The interest rate is 25 percent and the expected inflation rate is 5 percent.D) The interest rate is 9 percent and the expected inflation rate is 7 percent
- Suppose the Federal Reserve (the Fed) announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by ______the ________. Use the green line (triangle symbols) on the preceding graph to illustrate the effects of this policy. Place the black point (plus symbol) on the graph to indicate the new equilibrium interest rate and quantity of money. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is__________money in the financial system, there is an excess _________ money at the initial equilibrium interest rate. Individuals and businesses adjust their asset portfolios by _______bonds. As a result, the price of bonds_________ , and the interest rate______ . This process continues until the new equilibrium interest rate is achieved.At their last meeting, the Fed indicated that it would begin reducing its purchases of longer-term Treasuries and mortgage-backed securities. This is referred to as . Tapering. Tempering. Shirking. Slacking.If banks start paying higher interest rates on checking accounts, we would expect, assuming everything else held equal, Group of answer choices a) the demand for money to become more sensitive to changes in the interest rate. this is not correct b) the demand for money to become horizontal. c) the relationship between interest rates and the demand for money to be unaffected. d) the demand for money to become less sensitive to changes in the interest rate. e) a decrease in the supply of money.
- C=300+0.50(Y-T) Investment function is I=100-20t Government purchases and taxes are both 150 Money demand function (M/P)d=Y-150r Money supply M=1000 Price level P=2 a. Calculate equilibrium interest rate r b. Calclate equilibrium level of income YAssume the Bank of Canada conducts an open market purchase, which increases real GDP. What happens to the interest rate after both of these effects are taken into account when prices are held fixed? A) there is no change in the interest rate. B) the interest rate rises. C) the interest rate falls. D) the effect on the interest rate is ambiguous the answer was D. PLEASE EXPLAIN AND I WILL GIVE THUMBS UPAt the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that: a) the price of bonds will tend increase. b) the price of bonds will tend to fall. c) production equals demand. d) the goods market is in equilibrium.