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HW_chap_12_answers_[1]

HW_chap_12_answers_[1] - Econ 100 San Francisco State HW...

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Econ 100 San Francisco State HW Chapter 12 You do not need to turn this problem in to me, but you can assume that there will be problems very similar to it in either a quiz or an exam. It would greatly benefit your to do it. Below you can see the money market in a country that is similar enough to the U.S. to have a Fed. Solid lines are how the market is right now; dashed lines are how the market might look in the future. The real interest rate as set in the market for loanable funds is 3%. 1) Right now, what is the equilibrium nominal interest rate and equilibrium quantity of money? What is the real interest rate? What is the inflation rate? Is there inflation, deflation, or no change in the price level? Equilibrium nominal interest rate: 4% Equilibrium quantity of money: $2.2 trillion Real interest rate: 3% Inflation rate: = 4% - 3% = 1% There is inflation. 2) Now assume that the Fed starts buying Treasury Bills. What is the new equilibrium nominal interest rate and equilibrium quantity of money? In the short term, what is the real interest rate and inflation rate?
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