Billions of
Dollars
$ 630
645
575
425
Checkable deposits
448
300
170
Item
Small Time Deposits
Billions of
Dollars
$ 500
550
600
400
Checkable deposits
350
300
100
Item
Small Time Deposits
Billions of
Dollars
$ 200
300
350
150
Checkable deposits
500
250
50
The table shows the number of dollars demanded for asset purposes at each rate of interest. Given the transactions demand for money,
complete the table.
1.
Suppose the transactions demand for money is equal to 10% of nominal GDP, the supply of
money is $300 billion, and the asset demand for money is as shown in the table. If the
nominal GDP is $2,000 billion, the equilibrium interest rate is
a. 14%
b. 12%
c. 10%
d.
8%
2.
If the nominal GDP remains constant, an increase in the money supply from $300 billion to
$350 billion would cause the equilibrium interest rate to
a. rise to 12%
b. rise to 14%
c. fall to 6%
d. remain unchanged
3.
On the graph below, plot the total demand for money (Dm) at each interest rate.
4.
Assume the money supply (Sm) is $375 billion, plot this money supply on the graph.
a.
Interest
rate
Amount of money
demanded (billions)
For asset
purposes
14%
12%
10%
8%
6%
4%
2%
Total
$50
75
100
125
150
175
200
5.
If the money supply increases to $400 billion, the equilibrium interest rate would (rise, fall) ___________ to ____%
6.
If the money supply decreased to $275 billion, the equilibrium interest rate would (rise, fall) ______ to ___%
7.
Assuming the data from question , and the supply of money remains $300 billion
a.
if the nominal GDP increased by $500 billion, the total demand for money would (rise, fall) _________ by $_______ billion
at each rate of interest and the equilibrium rate of interest would be ___ %
b.
if the nominal GDP decreased by $500 billion, the total demand for money would (rise, fall) _________ by $_______ billion
at each rate of interest and the equilibrium rate of interest would be ___ %
16%
14%
12%
10%
8%
6%
4%
2%
200 225 250 275 300 325 350 375 400 425 450
8.
The total demand for money is equal to the transactions demand plus the asset demand for money. Assume each dollar held for
transactions purposes is spent (on average) five times per year to buy final goods and services. This means that transactions demand
for money will be equal to (what fraction or percent) ______________ of the nominal GDP, and, if the nominal GDP is $2,000 billion,
the transactions demand will be $___________ billion.