Can the money market be in equilibrium for any combination of money supply and interest rate...

Can the money market be in equilibrium for any combination of money supply and interest rate given a fixed money demand curve?

Expert Solution

Rahul Sunny answered 1 year ago

Given that the interest rate can be determined by the equilibrium of the demand and supply...

Given that the interest rate can be determined by the equilibrium of the demand and supply of money, the central bank could raise or lower the interest rate indirectly by increasing or decreasing the money supply. Does the Bank of Canada take this approach? Why or why not? In March 2020, the Bank of Canada decided to lower the overnight interest rate from 75% to 0.25%. While the bank has a target for the overnight rate, the rate itself is...

3. Assume that the money market is initially in equilibrium and that the money supply is...

3. Assume that the money market is initially in equilibrium and that the money supply is then increased. Explain the adjustments toward a new equilibrium interest rate. Will bond prices be higher at the new equilibrium rate of interest? What effects would you expect that interest rate change to have on the levels of output, employment, and prices? Answer the same questions for a decrease in the money supply.

When the interest rate is below the equilibrium interest rate, there is an excess money and the interest rate will .

When the interest rate is below the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.A) demand for; fallB) supply of; fallC) demand for; riseD) supply of; rise

37. Based on_____, changes in the interest rate bring the money market into equilibrium. a. classical...

37. Based on_____, changes in the interest rate bring the money market into equilibrium. a. classical theory, but not liquidity preference theory. b. neither liquidity preference theory nor classical theory. c. liquidity preference theory, but not classical theory. d. both liquidity preference theory and classical theory 38. A housing market boom may lead to ____ a. increases in aggregate supply, which the center bank could offset by increasing the money supply. b. increases in aggregate demand, which the center bank...

Explain 3 factors that can influence the equilibrium interest rate in the market?

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets...

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets equals the supply of real monetary assets. a. Write down the condition required for equilibrium in the money market using real quantities of monetary assets. b. The aggregate real money demand function is given as L(R, Y). For a given level of income, real money demand decreases as interest rate increases. Explain why L is negatively related to interest rates. How is the real...

3- Explain the impact on the following events on the money market equilibrium and equilibrium interest...

3- Explain the impact on the following events on the money market equilibrium and equilibrium interest rates. (25 pts): a) Real GDP increases due to an increase in exports (12.5 pts) b) Central bank sells government bonds in the private financial markets. (12.5 pts)

How can the money supply affect the interest rate? Explain briefly and show in the graph!

The interest rate is 5 percent initially. Now the Money Supply increases and the interest rate...

The interest rate is 5 percent initially. Now the Money Supply increases and the interest rate declines to 3.5 percent in the short run. Let us assume two scenarios. In the first scenario, the interest rate ends up at 4 percent in the long run, but in the second scenario it ends up at 6 percent in the long run. State what we are assuming about the liquidity effect (LE), income effect (IE), price level effect (PLE), and the expected...

What is the relationship between money supply, interest rate, and exchange rate?

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