3. Consider a bond that promises to pay $100 in one year. a. What is the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
3. Consider a bond that promises to pay $100 in one year. a. What is the interest rate on the bond if its price today is $75? $85? $95? b. What is the relation between the price of the bond and the interest rate? c. If the interest rate is 8%, what is the price of the bond today? 4. The following are the money demand and money supply functions in an economу. M €8,000 Md = €40,000 (0.25 – i) a. Calculate the equilibrium interest rate. b. Suppose the central bank raises the equilibrium interest rate to 10%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate? DIG DEEPER MyEconLab Visit www.myeconlab.com to complete all Dig Deeper problems and get instant feedback. 5. Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by SY(0.35 – i) a. Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds? b. What are the effects of an increase in wealth on her demand for money and her demand for bonds? Explain in words. c. What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in words. 2. Suppose that the household nominal income for an economy is £50,000 billion and the demand for money in this economy is given by Md = £Y(0.2 – 0.8i) a. What is the demand for money when the interest rate is 1% and 5%? b. What will be the impact on the demand for money if the nominal income declines by 20%? c. What is the relationship between the demand for money and income? Money demand and the interest rate? d. Explain what the central bank should do to interest rates if it needs to increase the demand for money. 3. Consider a bond that promises to pay $100 in one year. a. What is the interest rate on the bond if its price today is $75? $85? $95? b. What is the relation between the price of the bond and the interest rate? c. If the interest rate is 8%, what is the price of the bond today? 4. The following are the money demand and money supply functions in an economу. M €8,000 Md = €40,000 (0.25 – i) a. Calculate the equilibrium interest rate. b. Suppose the central bank raises the equilibrium interest rate to 10%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate? DIG DEEPER MyEconLab Visit www.myeconlab.com to complete all Dig Deeper problems and get instant feedback. 5. Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by SY(0.35 – i) a. Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds? b. What are the effects of an increase in wealth on her demand for money and her demand for bonds? Explain in words. c. What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in words. 2. Suppose that the household nominal income for an economy is £50,000 billion and the demand for money in this economy is given by Md = £Y(0.2 – 0.8i) a. What is the demand for money when the interest rate is 1% and 5%? b. What will be the impact on the demand for money if the nominal income declines by 20%? c. What is the relationship between the demand for money and income? Money demand and the interest rate? d. Explain what the central bank should do to interest rates if it needs to increase the demand for money.
Expert Answer:
Answer rating: 100% (QA)
Answer 3 1 a 333317647 and 5263 b negative relationship If price of bond increaseinterest r... View the full answer
Posted Date:
Students also viewed these economics questions
-
Please answer the following questions related to the article provided and submit your paper to the assignment link. Please ensure that you list the article on your References page, and use in-text...
-
Why did the Enron case surface? The Enron case surfaced when senior management of Enron was practicing unethical practices; making to company appear too good to be true. When in reality Enrons...
-
Please answer the following questions regarding the taxability of Social Security: a. A 68-year-old taxpayer has $20,000 in Social Security income and $100,000 in tax-free municipal bond income. Does...
-
A gaseous hydrocarbon (containing C and H atoms) in a container of volume 20.2 L at 350 K and 6.63 atm reacts with an excess of oxygen to form 205.1 g of CO2 and 168.0 g of H2 O. What is the...
-
On the first day of your summer internship, youve been assigned to work with the chief financial officer (CFO) of SanBlas Jewels Inc. Not knowing how well trained you are, the CFO has decided to test...
-
Every home football game for the past eight years at Eastern State University has been sold out. The revenues from ticket sales are significant, but the sale of food, beverages, and souvenirs has...
-
An object is moving in a circle with constant speed. Its kinetic energy is constant since the speed does not change. Would you conclude that the total external force acting on it is zero?
-
Palmona Co. establishes a $ 200 petty cash fund on January 1. On January 8, the fund shows $ 38 in cash along with receipts for the following expenditures: postage, $ 74; transportation-in, $ 29;...
-
1. How the singly linked lists can be represented? 2. How the doubly linked list can be represented? 3. What are benefits of ADT? 4. When singly linked list can be represented as circular linked...
-
After retiring as a physician, Bob Guthrie became an avid downhill skier on the steep slopes of the Utah Rocky Mountains. As an amateur inventor, Bob was always looking for something new. With the...
-
Graphically solve the following LPs: max s.t. z = 4x1-x2 8x12x 16 5x1-2x2 12 x,x2 20 max 2=X1-3x s.t. X X 5 4 X- 2x24 XX20 max 2 = 3x1-x
-
8 (a) A small bubble of air of volume 2.0 cm rises to the surface from the bottom of a lake of depth 20.0 m. The atmospheric pressure at the surface of the lake is 1.00 x 105 Pa. The density of water...
-
Potential and Kinetic Energy Worksheet Kinetic Energy (KE) = mass times velocity squared KE = mv Potential Energy (PE) = mass times the acceleration due to gravity times height PE = mgh = N*h (g= 9.8...
-
Below is a charge particle in a very large constant electric field which is given an initial velocity straight down. ttttttt tttte ttttt. What will immediately happen to the motion of the object? It...
-
The 1500 kg SUV shown below is at the bottom of a valley. The valley can be thought of as part of a circular path with a radius of 85 m, as indicated in the diagram. 8. i At the bottom of the valley,...
-
Q1 Show that k(E - Er) = kEt Hint: z (E;el(kz-lwot) + Exel(-kz-iwot)) = 2/ (Etel(-iwo) | z=0 z Z=0
-
Explain what you learned about ethos, pathos, and logos. a hundred words max https://www.youtube.com/watch?v=aUpiy67_nt4
-
For the given transfer function: Vo(s) / Vi(s) = (s^2C^2R^2 + 1) / (s^2C^2R^2 + 4sCR + 1) Assumiing that 1/(CR) = 120 PI so write the matlab code to find the magnitude plot
-
A second-order dynamic system is modeled as \[9 \ddot{x}+6 \dot{x}+\frac{10}{9} x=14 \delta(t), \quad x(0)=0, \quad \dot{x}(0)=-\frac{1}{4}\] a. Find the response \(x(t)\) in closed form. b. Plot the...
-
Consider a first-order system with time constant \(\tau\) and zero initial condition. Find the system's unit-step response for \(\tau=\frac{1}{3}\) and \(\frac{2}{3}\), plot the two curves versus \(0...
-
a. Identify the damping type and find the free response. b. Plot the free response by using the initial command. \(\ddot{x}+3 \dot{x}+4 x=0, \quad x(0)=\frac{2}{5}, \quad \dot{x}(0)=0\)
Study smarter with the SolutionInn App