à central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. 4.5 4.0 3.5 RATE (Percent) 5 3.0 Money Demand New MS Curve + New Equilibrium
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- The Bring it Home Feature discusses the use of cowrie shells as money. Although we no longer use cowrie shells as money, do you think other forms of commodity monies are possible? What role might technology play in our definition of money?Why does expansionary monetary policy causes interest rates to drop?♫ The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. INTEREST RATE (Percent) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 0 Money Demand 0.1 Money Supply 0.2 0.3 04 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 14 New MS Curve + New Equilibrium Suppose the Fed announces that it is lowering its target interest rate by 25 basis points, or 0.25 percentage point. To do this, the Fed will use open- market operations to money by the public. the
- Three countries are in a currency union. The countries are identical in that each has the same equilibrium level of output of £50 billion consistent with the same real interest rate of 2%, but each country is currently experiencing a different level of inflation as shown in Table 1. If the central bank for the currency union sets its (nominal) base rate at 7%, which one of the countries is likely to see an increase in its aggregate demand? (Hint: you need to use the real interest rate equation given in Chapter 8, Section 2.2 and may wish to review Chapter 8, Section 2.4.) Table 1 Information about three countries Country A Country B Country C Equilibrium output £50 billion £50 billion £50 billion Equilibrium real 2% 2% 2% interest rate Inflation rate 2% 5% 9% Select one: O Country A O Country B O Country C MacBook 80 DIN F1 F2 F3 F4 F5 F6 F7 FE @ € £ # $ & * 2 3 4 7 8. Q W E R Y COHomework (Ch 21) less than the quantity of After the decrease in the price level, the quantity of money demanded at the initial interest rate of 9% will be money supplied by the Fed at this interest rate. People will try to decrease their money holdings. In order to do so, people will buy bonds and other interest-bearing assets, and bond issuers will find that they can offer lower interest rates until the money market reaches its new equilibrium at an interest rate of 6% The following graph shows the economy's aggregate demand curve. Show the impact of the decrease in the price level by moving the point along the curve or shifting the curve. 180 150 Aggregate Demand 120 O PRICE LEVEL 80 I AD1 C1 OThe following graph represents the money market in a hypothetical economy. This economy has a central bank, but unlike in Canada, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. PRICE LEVEL INTEREST RATE (Percent) 4.5 4.0 3.5 1.5 1.0 0.5 0 Money Demand 0.1 Money Supply 0,2 0.3 0.4 0.5 MONEY (Trillions of dollars) 0.0 0.7 0.8 A New MS Curve OUTPUT + New Equilibrium Suppose the central bank announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage point. To do this, the central bank will use open-market operations to ▼ the money by Y the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money-supply curve (MS) in the correct location. Place the black point (plus symbol) at the…
- Suppose the central bank in the nation of Zook attempts to pay off its national debt by printing large amounts of currency. The large increase in the money supply causes the price level to rise by 1,300 percent. What do you expect will happen to the value of Zook's currency? Instructions: Round your answer to the nearest whole number. The value of Zook's currency will (Click to select) by percent.: As a manager of a firm, you are concerned about a potential change in interest rates, which would affect money market prices. An economic report has recently highlighted the following economic conditions: Saving rate is expected to increase slightly in 2022. Bank Negara Malaysia is expected to implement expansionary monetary policy in 2022 [Assuming no threat of inflation]; and Inflation rate is expected to decline slightly in 2022. Assuming that money market prices are not exposed to credit risk, how will money market prices change based on the report? Explain. [Suppose consumers lose their faith in the banking system, and decide to start stuffing their money under their mattress rather than saving it in a bank or buying bonds. This will cause interest rates to _____ and the amount borrowed to _____ increase or decrease?
- Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? can anyone explain please why it will changeConsider the following bank. Cash in Vaults=$25 Its deposits at Central Bank-$275 Loans it has made to customers=$1600 Value of government bonds it owns=$100 Deposits made by its customers=$2000 What are the bank's reserves (in dollars)? (Round to two decimal places and do not enter the currency symbol. If your answer is $6.114, enter 6.11. If your answer is $6.115, enter 6.12. If appropriate, remember to enter the - sign.)Hey, I need help with the following macro question. Thank you in advance! Imagine that the chair of the Federal Reserve announced that, as of the following day, all currency in circulation in the United States would be worth 10 times its face denomination. For example, a $10 bill would be worth $100; a $100 bill would be worth $1,000; and so forth. Furthermore, the balances in all checking and savings accounts would be multiplied by 10. So, for example, if you had $500 in your checking account, as of the following day your balance would be $5,000. Would you actually be 10 times better off on the day the announcement took effect? Why or why not?