Please show steps. I already know the answer. Thanks Refer to Figure 14.1. The m
ID: 1097101 • Letter: P
Question
Please show steps. I already know the answer. Thanks
Refer to Figure 14.1. The money market currently is in equilibrium at Point E1. When the Federal Fund rate
decreased from i1 to i2, domestic planned investment demanded increases by $100 billion and the Keynesian aggregate
demand curve shifts ______ by _______ billions, respectively.
A) upward; less than $100 billion B) upward; $100 billion
C) rightward; more than $100 billion D) rightward; $100 billion
Refer to Figure 14.1. The money market currently is in equilibrium at Point E1. Monetary policy-makers observe
that there is a large increase in the price of oil, and interest rates move from ______. The Fed wishes to maintain
output stability; therefore, it will _____, respectively.
A) i1 to i4; sell bonds B) i1 to i2; buy bonds
C) i1 to i2; sell bonds D) i1 to i4; buy bonds
Explanation / Answer
Answer 1.
D. Rightward, by $ 100 Millions
As, in the diagram it show, the federal fund rate decrese from i1 to i2, so there is a opposite relation between them, if the federal interest rate decrese, more institution will take the investment, because they have to pay less interest charges.
federal fund rate- it is also know as interest rate, they pay larger balance amount to to lend institution for maintaing trade balance. so if the interest rate will less, interest amount also paid less.
so, is it, when rate is shifted to i1 ti i2 then the demand for the fund increases.
Answer 2:-
A. i1 to i4, sell bonds
when there is increase in the price of oil, it will shift upward and if thr price rise, then demand will automatically down, because people will sell there bonds in high price, and get more profit, intead of buying bonds.
so, the Price will come to i1 to i4 and the demand will come to M1 to M4 and now the equilibrium point is E4