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Questions and Answers
Speculative motive exists when people choose to hold money without any interest rate or invest it to get more income.
Speculative motive exists when people choose to hold money without any interest rate or invest it to get more income.
True
People will buy bonds when they expect the interest rate to decrease and the price to increase in the future.
People will buy bonds when they expect the interest rate to decrease and the price to increase in the future.
True
The demand for money increases when the income level decreases.
The demand for money increases when the income level decreases.
False
An increase in the price level causes the demand for money to decrease.
An increase in the price level causes the demand for money to decrease.
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The supply of money is controlled by the central bank.
The supply of money is controlled by the central bank.
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An expansionary monetary policy implemented by the government leads to a decrease in the money supply.
An expansionary monetary policy implemented by the government leads to a decrease in the money supply.
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During a business cycle expansion, income is rising, which leads to a decrease in the demand for money.
During a business cycle expansion, income is rising, which leads to a decrease in the demand for money.
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When the price level rises, people want to hold more money.
When the price level rises, people want to hold more money.
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An increase in the money supply leads to a decrease in the equilibrium interest rate.
An increase in the money supply leads to a decrease in the equilibrium interest rate.
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The demand curve for money shifts rightward when government implements contractionary monetary policy.
The demand curve for money shifts rightward when government implements contractionary monetary policy.
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What is the speculative motive for holding money?
What is the speculative motive for holding money?
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How does an increase in income affect the demand for money?
How does an increase in income affect the demand for money?
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What effect does an increase in the price level have on the demand for money?
What effect does an increase in the price level have on the demand for money?
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How does an expansionary monetary policy implemented by the government affect the money supply?
How does an expansionary monetary policy implemented by the government affect the money supply?
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What happens to the equilibrium interest rate when the money supply increases?
What happens to the equilibrium interest rate when the money supply increases?
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Study Notes
Speculative Motive
- People may choose to hold money without seeking interest or investment returns due to the speculative motive.
- This motive arises from expectations about future interest rate changes.
- If individuals anticipate lower interest rates in the future, they might delay investing and hold onto money, expecting bond prices to rise.
Demand for Money and Income
- The demand for money increases when income levels rise.
- This occurs because individuals need more money for transactions and savings as their income increases.
Demand for Money and Price Level
- An increase in the price level causes the demand for money to increase.
- This is due to the need for more money to purchase the same quantity of goods and services as prices rise.
Expansionary Monetary Policy and Money Supply
- An expansionary monetary policy executed by the government increases the money supply.
- This policy aims to boost economic activity by making it easier to borrow money, leading to increased spending and investment.
Increase in Money Supply and Equilibrium Interest Rate
- A rise in the money supply lowers the equilibrium interest rate.
- An abundance of money in the market reduces the value of money, making lenders less willing to accept low interest rates.
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Description
Test your knowledge about the factors that influence the demand and supply curves of loanable funds, leading to changes in the equilibrium interest rate. Learn about the impact of wealth, expected returns, risk, and more on the interest rate.
