ECON 2301 - Chapter 28

Draw a demand for money curve. Label it MD0. Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD1. Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP. Label it MD2. When real GDP​ decreases, ______.

-Draw a demand for money curve and label it MD0. -Draw a demand for money curve that shows the effect of a decrease in real GDP to the left of MD0 and label it MD1. -Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP to the left of MD1 and label it MD2. a decrease in the demand for money occurs

According to Peter Howitt of Brown​ University, if inflation is lowered from 3 percent a year to​ zero, then in 30 years the accumulated value of all additional output produced would be worth​ ______ percent of current GDP.

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Consider the short run and the long run and then choose the statement that is correct. A. The real interest rate is dependent on the price level in the long run. B. In the short run, monet market equilibrium determines the price level. C. In the short run, other things remaining the same, a given percentage change in the quantity of money brings an equal percentage change in the price level. D. The real interest rate is independent of the inflation rate in the long run.

D. The real interest rate is independent of the inflation rate in the long run.

Draw a demand for money curve and label it MD. Draw a point at an interest rate of 5 percent a year. Draw an arrow on the MD curve to show the effect of a rise in the interest rate above 5 percent a year. Label it 1. Draw an arrow on the MD curve to show the effect of a fall in the interest rate below 5 percent a year. Label it 2. When the interest rate falls​, other things remaining the​ same, the opportunity cost of holding money​ ______ and the​ ______.

Draw a line from (2.7, 7) to (3.3, 1) and label it MD. Draw a point at (2.8, 6), draw the arrow going up and label it 1. Draw a point at (2.9, 5). Draw a point at (3.1, 3), draw the arrow going down and label it 2. rises; demand for money decreases

The figure shows the demand for money curve in Epsilon. 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. -If the interest rate is 5​ percent, people will (buy/sell) bonds. -Bond prices​ ______ and the interest rate will​ ______.

Draw the supply of money curve if the Fed wants the interest rate to be 6 percent a year at (2.9, 0). Label it MS. Draw a point at the equilibrium in the money market at (3.05, 5). -If the interest rate is 5​ percent, people will sell bonds. -Bond prices​ fall and the interest rate will​ rise.

GDP is $20 billion and the quantity of money is $4 billion. What is the velocity of circulation​?

The velocity of circulation is 5. Velocity=NGDP/money supply =20/4 = 5

If the Fed changes the quantity of​ money, the immediate effects are on​ ______ and the​ long-run effects are on​ ______.

the short-term nominal interest rate; the price level and the inflation rate