answer question 3,4 and 8

d. Suppose that the interest rate is 5%, In percentage terms, a. How much does this person withdraw each time she goes what bappens to this person's demand for money if her to the bank? Compute this person's money holdings for yearly income is reduced by 50m ? days 1 through 4 (in the morning, before she needs any of e. Summarize the effect of income on money demand. In percentage terms, how does this effect depend on the in- Whe money she withdraws). percentage terms, how does this effect depend on the in- b. What is the amount of money this person holds, on terest rate? Suppose now that with the advent of ATMs, this person 3. Consider a bond that promires to pay $100 in one year. withdraws money once every two days. a. What is the interest rate on the bond if its price today is d. Recompute your answer to part (b). a. What is the equilibrium interest rate? b. If the Federal Reserve Bank wants to increase i by 10 per- 8. The money multiplier centage points (e.g., from 2% to 12\%), at what level should the following: it set the supply of money? d. Consider the statement "When people eam more money, 9. Bank runs and the money multipller preferring to hold on to they obviously will hold more bonds." What is wrong with their cash. this statement? During the Great Depression, the U.S. economy experienced 6. The demand for bonds In this chapter, you learned that an increase in the interest nate : to keep their money in banks, preferring to hold an to their cash that an increase in the interest nate reduos the priat of banks How can an increase in the interest rate make bonds more multiplier? aftractive and reduce their price? Chapter 4 Financial Markets 83 d. Suppose that the interest rate is 5%, In percentage terms, a. How much does this person withdraw each time she goes what bappens to this person's demand for money if her to the bank? Compute this person's money holdings for yearly income is reduced by 50m ? days 1 through 4 (in the morning, before she needs any of e. Summarize the effect of income on money demand. In percentage terms, how does this effect depend on the in- Whe money she withdraws). percentage terms, how does this effect depend on the in- b. What is the amount of money this person holds, on terest rate? Suppose now that with the advent of ATMs, this person 3. Consider a bond that promires to pay $100 in one year. withdraws money once every two days. a. What is the interest rate on the bond if its price today is d. Recompute your answer to part (b). a. What is the equilibrium interest rate? b. If the Federal Reserve Bank wants to increase i by 10 per- 8. The money multiplier centage points (e.g., from 2% to 12\%), at what level should the following: it set the supply of money? d. Consider the statement "When people eam more money, 9. Bank runs and the money multipller preferring to hold on to they obviously will hold more bonds." What is wrong with their cash. this statement? During the Great Depression, the U.S. economy experienced 6. The demand for bonds In this chapter, you learned that an increase in the interest nate : to keep their money in banks, preferring to hold an to their cash that an increase in the interest nate reduos the priat of banks How can an increase in the interest rate make bonds more multiplier? aftractive and reduce their price? Chapter 4 Financial Markets 83