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Andreas93 [3]
3 years ago
15

Suppose consumers only hold checkable deposits. The demand for money for transactions by consumers is equal to Y*(0.3 - i), wher

e i is in decimals. Income is 800, and the reserve ratio of banks is 0.4. The supply of currency by the central bank is 40. What is the equilibrium interest rate
Business
1 answer:
Ksenya-84 [330]3 years ago
5 0

Answer: 17.5%

Explanation:

The equilibrium will occur where the money demanded equals to the money supplied i.e Ms = Md

From the question, the supply of currency by the Central Bank = 40

Money Supply (Ms) = m × B

where m = Money multiplier = 2.5

Note that the money multiplier can also be equal to 1/rr in situations wherebt the consumers do not hold any currency.

rr = reserve ratio, = 0.4

B = monetary base = 40

Note that the monetary base here is 40.

Since reserve ratio = 0.4, therefore

m = 1/0.4 = 2.5

Therefore, Ms = m × B

= 2.5 × 40

= 100

Thus Money supply Ms = 100.

Money demand(Md) = Y(0.3 - i),

Y = income = 800

i = interest rate

Since (Md) = Y(0.3 - i),

Md = 800(0.3 - i)

Equate the equation for the money demand and money supply together.

Ms = Md

100 = 800(0.3 - i)

100 = 240 - 800i

800i = 240 - 100

800i = 140

i = 140/800

i= 0.175

= 17.5%

Therefore, the interest rate is 17.5%

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1 year ago
A coin sold at auction in 2017 for $1,965,500. The coin had a face value of $5 when it was issued in 1794 and had previously bee
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Answer:

0.0642 or 6.42%

Explanation:

The period 't' between the year when the coin was issued, 1794, and 1971 is:

t=1971-1794 \\t=177\ years

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The annual rate was 0.0642 or 6.42%.

4 0
3 years ago
explain the law of increasing opportunity costs using the example of economic growth and a production possibilities curve.
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<h3>What is economy ?</h3>

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One's culture, values, education, technological advancement, history, social organization, political structure, legal system, and natural resources are all major determinants of an economy's processes. These elements determine the parameters and conditions under which an economy operates in addition to providing background and content. In other words, the economic realm is a social domain made up of connected human behaviors and exchanges that cannot exist independently.

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3 0
1 year ago
From a firm's point of view, when the demand for a good has a price elasticity of 0.5, then, all things remaining the same, a(n)
jeyben [28]

Answer:

The correct answer is: increase in the price of the good will increase the firm's revenue.

Explanation:

When the demand for goods has a price elasticity of 0.5, it implies that the demand is relatively inelastic. This implies that a proportionate change in price will cause less than proportionate change in price.

So when the firm increases the price of a good, this will lead to a smaller decline in the quantity demanded of the commodity. As a result, the total revenue will increase.

6 0
2 years ago
A vendor has learned that, by pricing caramel apples at $1.25, sales will reach 111 caramel apples per day. Raising the price to
Wittaler [7]

Solution:

Slope = y2 - y1 / x2 -x1

slope = 81 - 111 / $2.00 - $1.25

slope = -30/$0.75

So every $0.75 increase causes a decrease of 30 sales.

So the rise over run or slope of the line is -30/0.75 = -40/1

Start forming the equation:

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Substitute one of the points to find the y-intercept:

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So,

y = -40x + 161

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