Suppose that the current money market equilibrium has an interest rate of 5 percent and a quantity of $2 trillion. Suppose that at a 6 percent interest rate, the quantity of money demanded is $1.5 trillion, while at a 4 percent interest rate it is $2.5 trillion. If the Fed makes an open-market purchase of $50 billion, and the money multiplier is 10, what will be the new money market equilibrium?
A. An interest rate of 6 percent and a quantity of $1.5 trillion.
B. An interest rate of 5 percent and a quantity of $2 trillion.
C. An interest rate of 4 percent and a quantity of $2.5 trillion.
D. The new money market equilibrium cannot be determined from the information given.
Answer: C
You might also like to view...
The stock market provides two functions for corporate financing: reducing investors’ risk and setting the prices of stocks.
Answer the following statement true (T) or false (F)
How is the value of a good determined?
What will be an ideal response?
A price index:
A. summarizes the changes in the cost of living for only rural consumers. B. measures how much the cost of a market basket has risen or fallen relative to the cost in a base time period. C. is generally only used with consumer goods and services D. allows us to see clearly the changes in the cost of a market basket daily.
The silly clothes worn by a circus clown are an example of:
A. a natural resource. B. capital goods. C. labor. D. entrepreneurship.