ECON 1000 Study Guide - Money Supply, Aggregate Supply, Loanable Funds

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amberhornet683

16 Dec 2014

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For the following questions, consult the diagram below: Which of the following is correct? a. b. c. If the interest rate is 4 percent, there is excess money demand, and the interest rate will fall. If the interest rate is 3 percent, there is excess money supply, and the interest rate will rise. Classical theory assumes the price level adjusts to bring the money market into equilibrium: liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium. Classical theory assumes the interest rate adjusts to bring the money market into equilibrium. 2: which of the following statements is true? a. b. c. d. In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.

Related Questions

The Federal Reserve expands the money supply by 5 percent:

a. Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate.
b. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change
in the interest rate on output and the price level in the short run.
c. When the economy makes the transition from its short-run equilibrium to its new long-run equilibrium, what will happen to the price level?
d. How will this change in the price level affect the demand for money and the equilibrium interest rate?
e. Is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run?

ceruleanpig915

Part 1

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale.

a.The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

b.The long-run aggregate supply curve can never shift.

c.Either a decrease in the nominal money supply by the Federal Reserve, all else held constant or an increase in the price level, all else held constant, will shift the aggregate demand (AD) curve to the left.

d.The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

e.Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

Part 2

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale, using graphs to support your answer. You can create graphs by hand and take pictures and upload them with your answers, or you may use Word or Excel, and upload the file created by these software packages.

a.If the real money demand is greater than the real money supply, interest rates must rise to reach equilibrium in the money market as institutions sell bonds to obtain more money.

b.The federal government's control of the money supply, which influences interest rates, is the primary tool that policymakers use to impact the macroeconomy.

c.A decrease in the reserve requirement decreases the money supply because banks have fewer reserves.

d.The real money demand curve shows how households and businesses change their spending in response to changes in the interest rate.

e.Both an increase in the nominal money supply by the Federal Reserve and an increase in the price level will cause the real money supply curve to shift to the right.

yellowseal739

Question 1. (0.1 pt) According to the wealth effect, a higher price level will (decrease, increase)

the number of goods and services demanded. (Circle the correct answer for each.)

Question 2. (0.2 pt) If the central bank wants to expand aggregate demand, it can (decrease, increase)

the money supply, which would (decrease, increase) the interest rate.

(Circle the correct answer for each.)

Question 3. (0.2 pt) Monetary policy that contracts the money supply, will (decrease, increase) the

interest rate causing the aggregate demand curve to shift (in, out).

(Circle the correct answer for each.)

Question 4. (0.7 pt) The Federal Reserve contracts the money supply by 5 percent.

(Make sure to label your axes.)

a. ) Use the supply of money and the demand for money diagram to illustrate the impact of this policy on the interest rate.

b. ) Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run.

Question 5 . (0.8 pt) Explain how each of the following developments would affect the supply of money,

the demand for money, and the interest rate. Illustrate your answers with diagrams.

(Make sure to label your axes.)

a. ) The Fed's bond traders sell bonds in open-market operations.

b. ) An increase in credit-card availability reduces the cash people hold.

c. ) The Federal Reserve reduces banks' reserve requirements.

d. ) Households decide to hold more money to use for holiday shopping.

apricotantelope345

ECON 1000 Study Guide - Money Supply, Aggregate Supply, Loanable Funds

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