An economy produces only one good - rice. This year the quantity of rice produced is...

  

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An economy produces only one good - rice. This year the quantity of rice produced is 1000. The following figure describes the money market of this economy when money supply increases from $1,000 to $2,000. MS₁ MS₂ e. B $1000 $2000 -MD₁ Quantity of Money a. (2 marks) hat is the variable described by left vertical axis in the graph? b. (4 marks) if price level of rice is $3 when money supply is $1000, find the velocity of money in the economy, and the price level when money supply increases to $2000. C. (4 marks) List and briefly explain two possible costs of the phenomena when money supply increases in part b. d. (5 marks) If the quantity of rice also increases in the economy, which curve will increase as a result in the money market, MD or MS? Will the price level be higher than the price level in part b? Explain your answer. (5 marks) Further to Point B if the government decides to buy bonds in the economy, which curve will increase as a result in the money market, MD or MS? Will the price level increase or decrease? Explain your answer. An economy produces only one good - rice. This year the quantity of rice produced is 1000. The following figure describes the money market of this economy when money supply increases from $1,000 to $2,000. MS₁ MS₂ e. B $1000 $2000 -MD₁ Quantity of Money a. (2 marks) hat is the variable described by left vertical axis in the graph? b. (4 marks) if price level of rice is $3 when money supply is $1000, find the velocity of money in the economy, and the price level when money supply increases to $2000. C. (4 marks) List and briefly explain two possible costs of the phenomena when money supply increases in part b. d. (5 marks) If the quantity of rice also increases in the economy, which curve will increase as a result in the money market, MD or MS? Will the price level be higher than the price level in part b? Explain your answer. (5 marks) Further to Point B if the government decides to buy bonds in the economy, which curve will increase as a result in the money market, MD or MS? Will the price level increase or decrease? Explain your answer.

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a The variable described by the left vertical axis in the graph is the nominal interest rate b The e... View the full answer