question archive Refer to the table for Moola given below to answer the following questions
Refer to the table for Moola given below to answer the following questions
Subject:EconomicsPrice:2.85 Bought3
Refer to the table for Moola given below to answer the following questions.
| Money Supply |
Money Demand |
Interest Rate |
Investment at Interest (Rate Shown) |
Potential Real GDP | Actual Real GDP at Interest (Rate Shown) |
| $500 | $800 | 2% | $50 | $350 | $390 |
| 500 | 700 | 3 | 40 | 350 | 370 |
| 500 | 600 | 4 | 30 | 350 | 350 |
| 500 | 500 | 5 | 20 | 350 | 330 |
| 500 | 400 | 6 | 10 | 350 | 310 |
What is the equilibrium interest rate in Moola? %
What is the level of investment at the equilibrium interest rate? $
Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate and, if either, what is the amount?
There is a of $ billion.
Given money demand, by how much would the Moola central bank need to change the money supply in order to close the output gap?
the money supply by $
What is the (expenditure) multiplier in Moola?
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Money supply is equal to money demand at 500 when the rate of interest is 5%. Therefore the equilibrium interest rate is 5%
Investment is 20 when the rate of interest is 5%
Potential real GDP is 350 but when the investment is 20 the real GDP is 330. Therefore we have a recessionary gap and it is worth 20.
Money supply should be increased by 100
Investment will increase by 10 when the equilibrium interest rate becomes 4% and real income is increased by 20 to reach 350 which is the potential GDP. Therefore multiplier in this economy is 20/10 equals 2.
