Find the new equilibrium interest rate

Assignment Help Business Economics
Reference no: EM131098307

Use the Baumol-Tobin model to find money demand under the following assumptions. Income is $5000 per month (which can be broken down into 2500 in real income and a price level of 2) paid at the beginning of each month in the form of interest-earning bonds. Bonds earn an interest rate of 3.2% Each time you sell bonds a brokerage cost of $5.00 is incurred. a. Find optimal money demand b .How often are bonds sold and how much are sold each time? c. Assume that all have the same money demand, as above. Suppose the Fed reduces the money supply to $500 per person. Find the new equilibrium interest rate.

Reference no: EM131098307

Questions Cloud

Equal semi-annual cash flow in the equivalent series : A series of quarterly cash flows began with the first cash flow on April 1,1990 and ends with the last cash flow on January 1,2000. The first quarterly cash flow is equal to $24,000. Each successive cash flow increases $850. The series of quarterly c..
Compute present value of stream of profits for three year : A market is characterized by a demand curve that can be expressed as P = 400 – 5 Q. Each of the firms currently serving the market has a total cost function of the form C = 50 q. There are no fixed costs. compute the present value of a stream of prof..
An individual is considering the purchase of used automobile : An individual is considering the purchase of a used automobile. The total price is $6200 with $1240 as a down payment and the balance to be paid in 48 equal monthly payments with interest of 12% compounded monthly. The payments are due at the end of ..
Which bond has lowest expected after-tax real interest rate : If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate?
Find the new equilibrium interest rate : Use the Baumol-Tobin model to find money demand under the following assumptions. Income is $5000 per month (which can be broken down into 2500 in real income and a price level of 2) paid at the beginning of each month in the form of interest-earning ..
Which of these persons have same preferences as charles : Charles' utility function is U(x;y)=xy. Anne's utility function is U(x;y)=1000xy. Diana's utility function is xy. Elizabeth's utility function is U(x; y)=-1/(xy+1).Fergie' s utility function is xy-10000. Margaret's utility function is x/y. Philip's u..
Professor of engineering economics owns an older car : A professor of engineering economics owns an older car. In the past 12 months, he bought two new tires for $160, and installed a CD player for $110. He wants to keep the car for 2 more years because he invested money 3 years ago in a 5 year certifica..
What is the purpose of automobile insurance : The problem escalates in the fall of each year during deer mating season as more deer are one the move. While deer whistles and other vehicle warning systems appear ineffective in dealing with the problem, clearing brush in the road ditches to make d..
Accounting for externality reduces amount of ribs produced : Kansas City is famous for its barbeque, but good barbeque comes at a cost. Pit masters have to bear the costs of producing slow-roasted pulled pork and beef briskets, and there is also an external cost: Accounting for the externality reduces the reve..

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd