9) The following data destuliuu $100 $200 $300 $400 $ 500 S 600 Money supply (in
ID: 1129163 • Letter: 9
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9) The following data destuliuu $100 $200 $300 $400 $ 500 S 600 Money supply (in billions) 8.0 75 7.0 6.56.0 5.5 $12 $ 14 S 15 S 16 $16.5 S16.5 Interest rate Rate of investment (in billions) (a) At what rate of interest does the liquidity trap emerge? (b) At what rate of interest does investment demand become totally inelastic? If a lender desires to earn a return of 4 percent on a loan and the anticipated rate of inflation is 1 percent, the lender should charge a A. Real interest rate of 6 percent. BNominal interest rate of 4 percent. C. Real interest rate of 5 percent. D. Nominal interest rate of 5 percent. 11) If the Fed wants to increase AD, it should do which of the following? CA Conduct open market purchases. B. Raise the discount rate C. Raise the required reserve ratio. D. Lower capital gains tax ratesExplanation / Answer
Ans10) D is the correct option. Nominal intrest rate is 5%.
nominal intrest rate = real interest rate + inflation = 4% + 1% = 5%
Ans11) A is the correct option. open market purchases
open market purchase means the government will buy bonds and will increases the money supply in the economy which will shift the aggregate demand curve to the right meaning AD will rise.
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