12 Questions
What is the equation for money demand (Md)?
Md = kY - hi
What is the opportunity cost of holding money?
Interest payments
What are the two forms of assets in the money market?
Money and bonds
What is the symbol 'k' in the money demand equation?
Sensitivity of Md to changes in income
What is the purpose of holding money according to the transaction motive?
To purchase goods and services
What is the symbol 'h' in the money demand equation?
Sensitivity of Md to changes in interest rate
What happens to the opportunity cost of holding money when interest rate increases?
It increases
What is the effect of an increase in real income on the demand for money?
It increases
What is the real money supply?
The total amount of goods and services that can be purchased with the nominal money
How does an increase in the required reserve ratio affect the nominal money supply?
It decreases the nominal money supply
What is the effect of an increase in the price level on the demand for money?
It increases
What is the role of the central bank in controlling the money supply?
To influence or control the money supply through monetary policy
Learn about the money market and how the equilibrium interest rate is determined, assuming no international sector and no goods market influence. Understand the money demand function and its relationship with real income and interest rate.
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