Note:-Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure. The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $30 billion.Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.?INTEREST RATE3.02.52.01.51.00.50010Money SupplyMoney Demand203040MONEY (Billions of dollars)5060Money DemandMoney SupplySuppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion. The change in theinterest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending tofall by $1 billionAfter the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded toat each price level. The impact of an increase in government purchases on the interest rate and the levelknown as the crowding-outeffect.increasedecreasebyspending isUse the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending.Hint: Be sure your final aggregate demand curve (AD3) is parallel to AD and AD2. You can see the slopes of AD₁ and AD2 by selecting them onthe graph. 5. Fiscal policy, the money market, and aggregate demandConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The followinggraph shows the economy's initial aggregate demand curve (AD1).Suppose the government increases its purchases by $2 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph.?PRICE LEVEL116114112110108106104102100100AD₁3.0102104 106 108 110 112OUTPUT (Billions of dollars)114 116AMoney SupplyAD₂|The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $30 billion.ADShow the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.?

Marginal Propensity to Consume (MPC) is defined as the proportion of an aggregate increase in pay…

Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (ADI). Suppose the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph.

Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (ADI). Suppose the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

The following diagram represents the money market in the United States, which is currently in equilibrium, as indicated by the grey star. INTEREST RATE (Percent) 6.0 5.5 Money Demand 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Money Supply 0.6 0.7 0.8 0.9 1.0 1.1 1.2 QUANTITY OF MONEY (Trillions of dollars) 1.3 New Curve New Equilibrium ? the Suppose the Federal Reserve (the Fed) announces that it is raising its target interest rate by 50 basis points, or 0.50%. It would achieve this by . 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, the quantity of money demanded which means that bond issuers sell bonds. This process continues until the…
Consider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10
According to your graph, the equilibrium value of money is , therefore the equilibrium price level is Now, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion. In order to reduce the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply (MS2 ). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This contraction in the money supply will people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and the value of money will
The figure shows the demand for money curve in Epsilon. The Fed wants the interest rate to be 6 percent a year. If the interest rate is 5 percent a year, do people buy or sell bonds? Question Help Does the price of a bond rise or fall? Does the interest rate rise or fall? Interest rate (percent per year) 7- Draw the supply of money curve if the Fed wants the interest rate to be 6 percent a year. Label it. Draw a point at the equilibrium in the money market. 6- If the interest rate is 5 percent, people will bonds. 5- Bond prices and the interest rate will O A. fall; fall 4- B. rise; fall C. rise; rise MD O D. fall; rise 3+ 2.8 2.9 3.0 3.1 3.2 Real money (trillions of 2005 dollars) >>> Draw only the objects specified in the question. Click the graph, choose a tool in the palette and follow the instructions to create your graph. DII 888 F12 F10 F11 F7 F8 F9 F5 F6 esc F2 F4 F3 F1 & # ! delete %3D 4 5 6 7 8 1 P T Y Q W tab J K F A caps lock M C V shift option command command option fn…
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 2.0 1.33 2.5 2.00 4.0 4.00 8.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $4 billion.
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS1 ) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
Answer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. If nominal GDP is $300 and the supply of money is $250, the equilibrium interest rate will be Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 Multiple Choice 4 percent. 10 percent. 6 percent. 8 percent. 2 percent.
In the graph below (the market for money), the Rate of interest price of a dollar 12 10 8 4 2 50 ✔interest rate ✔price of borrowing or lending money O purchasing power S 100 250 Quantity of money demanded & supplied (billions of dollars) 150 is determined by the total demand for money intersecting with the total supply of money. 200 D
Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph. 116 114 AD, 112 AD, 110 AD, 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) PRICE LEVEL
Alyssa spends all of her money on comic books and mandarins. In 2014, she earned $27.00 per hour, the price of a comic book was $9.00, and the price of a mandarin was $3.00. Suppose that the Fed sharply increases the money supply between 2014 and 2019. In 2019, Alyssa's wage has risen to $54.00 per hour. The price of a comic book is $18.00 and the price of a mandarin is $6.00.
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 150 to 175. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. (? 12 Money Supply 10 Money Demand Money Supply Money Demand 10 15 20 25 30 MONEY (Billions of dollars) After the increase in the price level, the quantity of money demanded at the initial interest rate of 6% will be v than the quantity of money supplied by the Fed at this interest rate. People will try to their money holdings. In order to do so, people will bonds and other interest-bearing assets, and bond issuers will find that they equilibrium at an interest rate of - interest rates until the money market reaches its new %. The following graph shows the economy's aggregate demand curve. Show the impact of the increase in the price…
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 8.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion. money Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.