What is the equilibrium rate of interest

Assignment Help Business Economics
Reference no: EM131194529

The demand for money in a country is given by Md = 10,000 - 10,000r + where Md is money demand in dollars, r is the interest rate (a 10 percent interest rate means r = 0.1), and is national income. Assume that is initially 5,000. a. Graph the amount of money demanded (on the horizontal axis) against the interest rate (on the vertical axis). b. Suppose the money supply (Ms) is set by the central bank at $10,000. On the same graph you drew for part a., add the money supply curve.What is the equilibrium rate of interest? Explain how you arrived at your answer. c. Suppose income rises from = 5,000 to = 7,500. What happens to the money demand curve you drew in part a.? Draw the new curve if there is one.What happens to the equilibrium interest rate if the central bank does not change the supply of money? d. If the central bank wants to keep the equilibrium interest rate at the same value as it was in part b., by how much should it increase or decrease the supply of money given the new level of national income? e. Suppose the shift in part c. has occurred and the money supply remains at $10,000 but there is no observed change in the interest rate. What might have happened that could explain this?

Reference no: EM131194529

Questions Cloud

How would the country have been treated differently : In Germany's view, how would the country have been treated differently if the principles they attribute to President Wilson had been applied?
Describe the major concepts of the theory : Describe the theorist's background in detail and discuss how their experiences have impacted the theory development. Examine crucial references for the original and/or current work of the theorist and other authors writing about the selected theory..
Perfectly competitive firm operates in short-run with labor : A perfectly competitive firm operates in the short-run with labor as its only variable factor. Its production function is: Q = -L3 + 10L2 + 88L where Q is output per week measured in tons and L is the number of workers employed. The weekly wage is $3..
Determine optimal ordering quantity : EMP 515 Materials and Logistics Management Spring 2015 Exam. Ordering costs are $100 per order. Order lead time is 2 month Determine: Optimal ordering quantity and Minimal reordering point that ensures probability of not running out of stock of 98%
What is the equilibrium rate of interest : The demand for money in a country is given by Md = 10,000 - 10,000r + where Md is money demand in dollars, r is the interest rate (a 10 percent interest rate means r = 0.1), and is national income. Suppose the money supply (Ms) is set by the central ..
Discuss how the egyptians influenced the early greek culture : Discuss how the Egyptians influenced the Early Greek culture. Please choose one example from Egypt and one from Greece in either Art, sculpture, religion, architecture, or politics and show this influence.
Decrease the short-term interest rate : On June 5, 2003, the European Central Bank acted to decrease the short-term interest rate in Europe by half a percentage point, to 2 percent. The bank’s president at the time,Willem Duisenberg, suggested that, in the future, the bank could reduce rat..
Draw the network : EMP 515 Materials and Logistics Management Spring 2014 Exam Questions. Formulate a transshipment and balanced transportation model to minimize the daily cost of transportation and refining the oil requirements of LA and NY
What is the growth rate of knowledge in this economy : Consider the following variation of the Romer model. Provide an economic interpretation for each equation. Demonstrate that 0

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd