Question

The real money demand curve is given by: L d (R, Y ) = 0.5Y − 100R − 20 where Y is the real GDP and R refers to the interest rate. The initial monetary base level MB = 100. The initial money supply level Ms = 200, price level P = 10 and initial output level Y = 100. 1. Calculate the initial money multiplier and equilibrium interest rate. The Fed increases the monetary base by 10% through open market purchases. Assuming the money multiplier is still 2. Suppose that real GDP, price, and ination expectations are unaected by monetary policy. Find a new interest rate in the short-run. In the long run, price increases as much as the increase in the money supply. The monetary policy promotes corporate investment and increases government spending. Thus, a new real GDP Y = 110 in the long run. Find a new interest rate in the long run.During a recession, the monetary base increased as the outcome of an easing monetary policy. Banks are hesitant to lend money, which increases the excess reserve ratio. Thus, assume that the Fed increases the monetary base by 10% from the initial monetary base level MB = 100 whereas money multiplier rather decreases from 2 to 1. What happens in the short-run interest rates in this case? Again, we assume that real GDP, price and ination expectations are unaected by monetary policy in the short-run.. Compare the eect of the monetary policy on the short-run interest rates with and without changes in the excess reserve ratio.

Answer #1

mm = money multiplier = .8
MB = monetary base = 2500
Money Demand: Md = P X [ a0 + .5 (Y) - 200
(i) ]
where: a0 = 800, Y = 4000
For simplicity we hold the price level fixed at 1 and assume
that inflationary expectations are fixed at 2%. Y is also held
constant in this problem.
1）What is the equilibrium interest rate (i)?
2）Suppose a0 falls to 600. What is the new
equilibrium interest rate?...

Suppose the demand for real money balances is Md/P = L(Y, i),
where L(Y, i) is an increasing function of income Y and a
decreasing function of the nominal inter- est rate i. Assume that
the interest elasticity of money demand is infinite when the
nominal interest rate is zero. Money-market equilibrium is
represented by the equation Ms/P = L(Y, i), where Ms is the money
supply controlled by the central bank and P is the price level. The
LM...

Assume that the demand for real money balance, (M/P) d = 0.5Y –
200i, where Y is national income and i is the nominal interest rate
(in percent). The real interest rate r is fixed at 2 percent by the
investment and saving functions. The expected inflation rate is 1
percent, real GDP is 5,000 and the money supply is 209,110.
a. What is the nominal interest rate?
b. What is the price level?
c. Now suppose Y is 2,000,...

Assume the real money demand function is
L(Y;i)=2000+0.3Y-5000i
where Y is real output, P is the price level, i is the nominal
interest rate on non-monetary assets and monetary assets earn no
interest.
a) Assuming that the asset market is in equilibrium at i=0.05.
Find equilibrium levels of real money supply, nominal money supply,
and the velocity of money if P=100, and
Y=2000.
b) Find the real income elasticity of money demand at the
equilibrium level of money balances found...

Suppose real GDP has increased by $100 million. At the same
time, consumption expenditures rose by $90 million. This would
imply that the marginal propensity to consume is.... Select one: a.
0.9 b. 0.8 c. 0.75 d. 0.6
If an increase in autonomous consumption spending worth $50
million results in a $400 million increase in equilibrium real GDP,
then... Select one: a. the multiplier is 3.5 b. the multiplier is 8
c. the multiplier is 0.125 d. the multiplier is...

14. An increase in the money supply will increase real GDP
growth in the long run in
A) the Real Business Cycle model.
B) the New Keynesian model.
C) Neither the Real Business Cycle model nor the New Keynesian
model.
D) Both the Real Business Cycle model and the New Keynesian
model.
15. Suppose The Fed lowers the reserve ratio requirement for
banks to increase the money supply in an economy. Which of the
following best describes why this may...

Expansionary monetary policy is used to decrease unemployment
and increase real GDP. This policy works in the short run, but is
it effective in the long run? Place the following events in order
from first to last.
The Fed invokes expansionary monetary policy by increasing money
supply.The AD curve shifts rightward.Resource prices adjust.SRAS
shifts to the left.The economy moves to a new long-run
equilibrium.

We cannot say an expectation is rational if ________?
the expectation is different from what the Fed expects.
only some people have this expectation.
not all the information is used to form the expectation.
the expectation ends up to be wrong.
What kind of monetary policy can be used to reduce the rate of
inflation?
Selling bonds
Lowering the interest rate
Any expansionary monetary policy would work.
None of the above would work.
Suppose we hold money velocity constant, which...

Consider an economy that is described by the following
equations: C^d= 300+0.75(Y-T)-300r T= 100+0.2Y I^d= 200-200r
L=0.5Y-500i Y=2500; G=600; M=133,200; Pi^e=0.05. (Pi being the
actual greek pi letter sign). Please solve part D and E
(a) obtain the equation of the IS curve
(b) obtain the equation of the LM curve for a general price
level, P
(c) assume that the economy is initially in a long-run (or
general) equilibrium (i.e. Y=Y). Solve for the real interest rate
r, and...

Md=100-10r+0.5Y
Md=Money demand
r= interest rate
Y= real income
a. In the money demand equation why is the sign of interest rate
is negative and the sign of real income is positive,
explain.
b. If real income is 800 billion TL and interest rate is %10
what is the quantity of money demand?
c. If equilibrium interest rate is %5 and real income is
constant (Y=800 billion TL) what is the quantity of money
supply?
d. Draw the money market...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 10 minutes ago

asked 11 minutes ago

asked 27 minutes ago

asked 27 minutes ago

asked 50 minutes ago

asked 52 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago