The figure shows the demand for money curve and the supply of money curve. Draw a new MD curve that shows the effect of an increase in real GDP. Label it MD ₁ .

Draw a point at the new equilibrium quantity of money and interest rate.

The equilibrium interest rate before real GDP increases is _____ 9 percent a year.

After real GDP increases. at an interest rate of 4 percent a year. people want to hold _____ money so they ______ bonds.

A. Less; sell

B. The same quantity of; buy some bonds and sell some

C. Less; buy

D. more; sell

E. more; buy

The price of a bond ______ and the interest rate ______ .

A. falls; rises B. rises; rises

C. rises; falls

D. does not change; does not change

E. falls; falls

Nominal Interest rate (percent per year)

Quantity of money (trillions of dollars)

(4.08,0)

>>> Draw only the objects specified in the question.

Transcribed Image Text:

7- 5- 4- 3- 2- 1- 0+ 3.8 3.9 MS 4.0 4.1 MD 4.2 7- 5- 4- 3- 2- 1- 0+ 3.8 3.9 MS 4.0 4.1 MD 4.2

Answer rating: 100% (QA)

An increase in real GDP increases the spending powe... View the full answer