4. If nominal money demand doubles and the real money supply also does what happens to...

4. If nominal money demand doubles and the real money supply also does what happens to the price level ( ). The price level increases by a factor of four b. The price level doubles ). The price level is unchanged. d. The price level falls by one-half. IL Short-Answer O stiens (19 points) 5. (7 points) If the Federal Reserve sold government securities, then the money supply (increase decrease remain the same), the money he would _(increase decrease remain the same), the money multiplier would (increase decrease remain the same, and the amount of currency would (increase decrease remain the same and the of deposits would (increase decrease remain the samel. Such action will shift the money supply curve to the right and use the interest rate to (inctcase decrease 6. points) Suppose total reserve is 100, money supply is 1200, and currency is fifth of deposit. Then currency equals deposit is money multiplier is and reserveris 7.8 points) Consider the following conomy ) 1-SY. 2004 Y-4500 Real money demand Full-employment output Expected inflation Nominal money supply Price level M-9000 A. When the awet market is in equilibrium, the real interesate is The equilibrium seal supply of money is B. Now suppose output increases to 4640. The equilibrium nominal interest rate in the asset market is The equilibrium sal demand for money is C. Use the cosy market squilibrium diagram to demonstrate the effects market when real output increases. How will this affect the equilibriumitest matet (4 points)

II. Short-Answer Questions (19 points) 5. (7 points) If the Federal Reserve sold goverment securities, then the money suppl would (increase decrease/remain the same), the money base woul (increase decrease/remain the same), the money multiplier woul (increase/decrease/remain the same), and the amount of currency would (increase/decrease/remain the same) and the amount o deposits would (increase/decrease/remain the same). Such am action will shift the money supply curve to the left/right), and cause th interest rate to (increase decrease). 6. (4 points) Suppose total reserve is 100, money supply is 1200, and currency is one fifth of deposit. Then currency equals deposit is money multiplier is __, and reserve ratio is 7. (8 points) Consider the following economy: ) Real money demand Full-employment output Expected inflation Nominal money supply Price level L-0.5Y - 2004r+ Y= 4600 5% M-9000 P-4 A. When the asset market is in equilibrium, the real interest rate is The equilibrium real supply of money is B. Now suppose output increases to 4640. The equilibrium nominal interest rate in the asset market is The equilibrium real demand for money is C. Use the money market equilibrium diagram to demonstrate the effect on money market when real output increases. How will this affect the equilibrium interest rate? (4 points)