Question

ease note that you will not be able to go back after answering a question. As such, think carefully before submitting your answers. If you have ay issues with the exam, please reach out to me via email immediately. Question 102 10 pts The money market model shows how the interaction of Select] and (Select] determines the [Select] in the economy. The [Select ] 7 curve is downward sloping because people want to hold more money when the interest rate is [Select] On the other hand, the [Select curve is Select) If prices in the economy increase, then the [Select] curve shifts [Select] and the interest rate (Select) To lower the interest rate in the economy, the Federal Reserve Bank can (Select) the [ Select by (Select] treasury securities or Select • the reserve requirement ratio.

Answer 1

The money market model shows how the intersection of money supply and money demand determines the short term interest rate in the economy. The money demand curve is downward sloping because people want to hold more money when the interest rate is is lower. On the other hand, money supply curve is vertical.

If prices in the economy increases, then the money demand curve shifts outwards and interest rate remains the same.

To lower the interest rate in the economy, the Federal Reserves Bank can increase the money supply by buying treasury securities or derceasing the reserve requirement ratio.