Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 34 - Part XII - The Influence of Monetary and Fiscal Policy on Aggregate Demand - Problems and Applications - Page 767: 1

Answer

Please see the graphs.

Work Step by Step

a) The action of buying bonds increases the money supply. The money supply shifts to the right. The money demand curve doesn't move, so the interest rate decreases. b) The decrease in the cash people hold decreases the money demand (and lowers the demand curve. The money supply curve stays constant, so the interest rate decreases. c) The decreased reserve requirements increases the amount of funds the lending institutions can lend. This increases the money supply curve (and shifts the supply curve to the right). The demand curve for money stays the same, so the interest rate decreases. d) The decreased money for current shopping increases the demand for money. The supply of money stays the same, so the interest rate increases. e) The increased demand increases the demand for money. The supply curve doesn't move, so the interest rate increases.
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