What is the quantity of money demanded when the interest rate is 6%? quantity: $ billionbillion What is the quantity of money de
manded when the interest rate is 8%? quantity: $ billionbillion Choose the statement that best explains the relationship between the quantity of money demanded and the interest rate on bonds. If the interest rates increase, the quantity of money demanded decreases. If the interest rates increase, money demand falls. If the interest rates increase, money demand increases. If the interest rates increase, the quantity of money demanded increases.
1 answer:
Question
Using the attached hypothetical demand curve, answer the following questions:
- What is the quantity of money demanded when the interest rate is 6%?
- What is the quantity of money demanded when the interest rate is 8%?
- Choose the statement that best explains the relationship between the quantity of money demanded and the interest rate on bonds.
A) If the interest rates increase, the quantity of money demanded decreases.
B) If the interest rates increase, money demand falls.
C) If the interest rates increase, money demand increases.
D) If the interest rates increase, the quantity of money demanded increases.
Answer 1) & 2)
When the interest rate is 6%, the demand for money is $40 billion, and when the interest rate climbs to 8%, the money nosedives to $20 billion.
Answer 3):
The correct choice is B)
Explanation:
The relationship between interest rate and money demand is very simple. The higher the rate, the higher the cost of capital. The higher the cost of capital, the lower the Return On Investment. Because businesses are structured to thrive on more profit or returns, business owners, generally will gun for more money when there is a lower interest rate thus creating a surge in demand.
Kindly note that the analysis is based the assumption that all other factors remain constant.
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Answer:
Objective function (maximize)
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Explanation:
This a linear programming problem. We have an objective function (in this case it is the profit) that we want to optimize, but complying with constraints (in this case, the availability of ingredients).
The objective function can be defined taking into account the profits of the two kind of chips:
The constraints can be expressed taking into account the amount of ingredients every unit of chip needs and stating that it has to be less or equal to the availability of this ingredient:
- Availabitily of salt:
- Availability of herbs
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With these expressions the linear programming problem can be solved.