Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 16.1, Problem 1QQ
To determine
Equilibrium in money market .
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Students have asked these similar questions
The economy is characterized as:
C=100+0.8Yd
G=T =50
I=50-25i
MS=200
P=1
Md=Y-25i
1. What is the budgetary deficit?
2. What is the total demand for money?
3. What is the equilibrium interest rate?
22.
An increase in the demand for bonds leads to
A)
a decrease in the price of bonds, a decrease in the interest rate, and a decrease in aggregate demand.
B)
an increase in the price of bonds, an increase in the interest rate, and an increase in aggregate demand.
C)
an increase in the price of bonds, a decrease in the interest rate, and an increase in aggregate demand.
D)
a decrease in the price of bonds, an increase in the interest rate, and an increase in aggregate demand.
23.
A higher exchange rate for the U.S. dollar means that
A)
the U.S. dollar trades for less foreign currency.
B)
the U.S. dollar trades for more foreign currency.
C)
foreign currency has risen in value relative to the dollar.
D)
the U.S. dollar has fallen in value relative to the foreign currency.
24.
An increase in the U.S. exchange rate will make U.S. exports.
A)
less attractive to foreigners…
The bond market is depicted in the graph to the right.
a. The bond demand curve is downward sloping because
A. lower bond prices translate into higher interest rates and returns.
B. as the interest rate decreases people are willing to buy more bonds.
C. the government sells more bonds at lower interest rates.
D. the Fed's decision to buy or sell bonds is independent of the interest rate.
b. Suppose the Fed decides to buy bonds.
1.) Using the line drawing tool, depict changes in the bond market. Properly label your line.
2.) Using the point drawing tool, label the new equilibrium point 'E₁'.
Carefully follow the instructions above, and only draw the required objects.
Price of Bonds
1000-
900-
800-
700-
600-
500-
400-
300-
200-
100-
0-
0
T
5
10
So
Eo
15 20 25 30 35
Quantity of Bonds
D
40 45
7
50
Q
Chapter 16 Solutions
Macroeconomics
Ch. 16.1 - Prob. 1QQCh. 16.1 - Prob. 2QQCh. 16.1 - Prob. 3QQCh. 16.1 - Prob. 4QQCh. 16.4 - Prob. 1QQCh. 16.4 - Prob. 2QQCh. 16.4 - Prob. 3QQCh. 16.4 - Prob. 4QQCh. 16.5 - Prob. 1QQCh. 16.5 - Prob. 2QQ
Ch. 16.5 - Prob. 3QQCh. 16.5 - Prob. 4QQCh. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Prob. 3DQCh. 16 - Prob. 4DQCh. 16 - Prob. 5DQCh. 16 - Prob. 6DQCh. 16 - Prob. 7DQCh. 16 - Prob. 8DQCh. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1PCh. 16 - Prob. 2PCh. 16 - Prob. 3PCh. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Prob. 6PCh. 16 - Prob. 7P
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Similar questions
- The Federal Funds Rate is: A. A short-term nominal interest rate B. A short-term real interest rate C. A long-term nominal interest rate D. A long-term real interest ratearrow_forwardIn the graph you've just explored, by how much does the quantity of money demanded change if the interest rate rises from 5 percent to 6 percent? A. $9 trillion B. $1 trillion C. $10 trillionarrow_forwardPlease explain the relationship between bond market and money market. Explain the process how an increase in the money supply by the Fed lowers the interest rate through the BOND MARKET to reach the new equilbrium interest rate. Explain the impact of increase in GDP on the interest rate.arrow_forward
- Economics Suppose that there is excess supply of money at the current interest rate. During the adjustment process: a. interest rates will rise and bond prices will fall b. interest rates and bond prices will both rise c. interest rates and bond prices will both fall d. interest rates will fall and bond prices will rise Explain it correctlyarrow_forward2. What effect a large federal budget deficit have on interest rates? Price B$ RD T Q. of Bonds 3. The president of the U.S. announces in a press conference that he will fight the higher inflation rate with a new antiinflation program. Predict what will happen to interest rates if the public believes him.arrow_forward1. Explain the relationship between the bond market and the economy. 2: Explain what is the bond market indicating the state of the economy if the yield curve is flat. 3: Explain what is the bond market indicating the state of the economy if the yield curve is negative. 4: Explain what is the bond market indicating the state of the economy if the yield curve is positive. 5. Explain the relationship between bond prices and interest rates and the inflation rates.arrow_forward
- What is the sequence of events from a rise in the federal funds rate target range to a change in the inflation rate? Other short-term interest rates _______. A. and the long-term interest rate rise the same day B. rise the same day, but it takes a few months for the supply of loanable funds to decrease C. rise within a few weeks, but the long-run interest rate rises almost immediately D. rise the same day, but it takes a few months for the supply of loanable funds to increasearrow_forward3 In Friedman's theory, money demand is a function of a. average past income, current inflation, return on bonds, return on equities b. permanent income, expected inflation, return on money, return on bonds, return on equities c. return on bonds, return on inflation, return on equities, return on stock d. current income, expected inflation, return on money, return on bonds, return on equitiesarrow_forward1.How is GDP affected by the nominal and effective interest rate? 2.In Fiscal policy, how is GDP, spending and tax affected? 3.What is the relationship between inflation and interest rates in monetary policy?arrow_forward
- Assume that there is an increase in perceived bankruptcy risk. As a result of this we would expect to see a. money demand and interest rates to rise. b. income and interest rates to rise. c. money demand and interest rates to fall. d. money supply to rise and interest rates to fall.arrow_forward26. A contractionary monetary policy combined with an expansionary fiscal policy will (A) decrease both income and consumption (B) increase both income and consumption (C) have uncertain effects on the interest rate and investment D) increase the interest rate and decrease investment (E) increase both the interest rate and investmentarrow_forwardQuestion 6 If the money multiplier is 3.5, a $10 billion increase in the monetary base Select one: a. increases the quantity of money by $35 billion. b. increases the quantity of money by $10 billion. C. increases the quantity of money by $3.5 billion. d. increases the quantity of money by $2.86 billion.arrow_forward
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