<p>Not many. In total I have like 16 equations and many are just very simple. Here are some: </p>
<p>Multiplier=1/(1-MPC)
MPC= change in spending/change in income
money multiplier=1/reserve requirement
change in money supply=money multipler*change in bank reserves</p>
<p>Can someone briefly explain how and why interest rates are affected by expansionary/contractionary fiscal/monetary policy? </p>
<p>Thanks.</p>
<p>Like, I know that:</p>
<p>Fiscal Policy: when AD decreases, int rates decrease, and vice versa
Monetary: when AD decreases, int rates increase</p>
<p>So can someone please explain that? Thanks</p>
<p>EDIT: And I don’t get loanable funds either, so can you incorporate that into your explanation as well? Thanks again.</p>
<p>does anybody have the answers to the 1995 test? (micro too)</p>
<p>Monetary policy is the policy that affects interest rate.</p>
<p>Expansionary monetary policy (increasing money supply) causes interest rates to go down. Thus, the interest-rate sensitive consumption rises, and investment rises. This causes aggregate demand to shift outward.</p>
<p>Contractionary monetary policy is vice-versa.</p>
<p>With fiscal policy, if the government increases government spending, interest rates will rise.</p>
<p>This can be explained through loanable market funds:</p>
<p>Money supply remains the same, but the demand for money rises, which causes the new equilibrium to be at a higher rate of interest.</p>
<p>This is known as “crowding-out” because the higher interest rate will discourage investment spending.</p>
<p>Hope this makes sense…</p>
<p>Good luck. I’m studying Micro right now :D</p>
<p>Okay so money multiplier=1/reserve requirement
The reserve requirement is a percent so would the money multiplier for 100% reserve requirement be 1 and for 10% reserve requirement be 10 and so on…</p>
<p>Okay so why does the interest rate go down when the money supply increases?</p>
<p>Use hte money market graph. If money supply is vertical, and the money demadn is downsloping, rightward shift of money supply = lower interest rate.</p>
<p>Yeah. That’s part of the loanable funds graph.</p>
<p>But really, you just have to know interest rate decreases/increases.</p>
<p>Focus more on the broad stuff like AS/AD…</p>
<p>Macro should be an easy test.</p>
<p>What are the axes labels on the money market graph
Is the X axis money supply and the Y axis interest rate?</p>
<p>the x-axis is quantity of money, the vertical line is $ supply</p>