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Category > Economics Posted 05 Jun 2017 My Price 7.00

Bernanke’spolicy guide

How much would the Fed have had to reduce long-term interest rates to get the same stimulus as President Obama’s $800 billion fiscal stimulus?

(Refer to the formula below.)

 

 

Bernanke’spolicy guide:

1/4 point reduction in long-term interest rate

=

$50 billion fiscal stimulus

 

 

(a)3-point decrease

(b)2-point decrease

(c)4-point decrease

(d)3.5-point decrease

 

The following data describe market conditions:

 

 

Money supply (in billions)

$100  

$200  

$300  

$400  

$500  

$600  

$700   

Interest rate

8.0  

7.5  

7.0  

6.5  

6.0  

5.5   

5.5   

Rate of investment (in billions)

$12  

$12  

$15  

$16  

$16.5  

$16.5  

$16.5   

 

Instructions: Enter your responses as a percent rounded to one decimal place.

 

(a) At what rate of interest does the liquidity trap emerge?

 

%

 

(b) At what rate of interest does investment demand become totally inelastic?

 

%

Answers

SuperTutor
(15)
Status NEW Posted 05 Jun 2017 05:06 AM My Price 7.00

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