If the current interest rate in the money market is 6% and the equilibrium inter
ID: 1197532 • Letter: I
Question
If the current interest rate in the money market is 6% and the equilibrium interest rate is 3%:
money demanded is less than money supplied.
money demanded is greater than money supplied.
money demanded is equal to money supplied.
Consider an economy where the total population is growing faster than the aggregate real output, then:
national income is falling
real GDP is declining
the standard of living is declining
nominal GDP per capita is falling
a.money demanded is less than money supplied.
b.money demanded is greater than money supplied.
c.money demanded is equal to money supplied.
Consider an economy where the total population is growing faster than the aggregate real output, then:
a.national income is falling
b.real GDP is declining
c.the standard of living is declining
d.nominal GDP per capita is falling
Explanation / Answer
1.
When current interest rate is higher than market interest rate, it implies money supply is higher than money demand.
This is because borrowers would refrain borrowing money at such high interest rates and lenders would try to loan out as much as possible in order to earn high interest rate incomes.
Therefore, correct option: (a) money demanded is less than money supplied.
2.
When population is higher than real GDP, nominal GDP per capita is falling
3.
Total increase in spending = $700+$100 = $800 million
MPC = 0.8
Multiplier = 1/MPC = 1/0.8 = 1.25
Total increase in GDP = 1.25*800 = $100 million
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