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Money Market Equilibrium and Monetary Policy

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Money Market Equilibrium and Monetary Policy

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Questions and Answers

What is the equation for money demand (Md)?

Md = kY - hi (correct)
Md = kY + hi
Md = kY * hi
Md = kY / hi

What is the opportunity cost of holding money?

Interest payments (correct)
Transaction costs
Unemployment rate
Inflation rate

What are the two forms of assets in the money market?

Money and stocks
Money and bonds (correct)
Money and goods
Money and services

What is the symbol 'k' in the money demand equation?

Sensitivity of Md to changes in income (A) Signup and view all the answers

What is the purpose of holding money according to the transaction motive?

To purchase goods and services (B) Signup and view all the answers

What is the symbol 'h' in the money demand equation?

Sensitivity of Md to changes in interest rate (A) Signup and view all the answers

What happens to the opportunity cost of holding money when interest rate increases?

It increases (A) Signup and view all the answers

What is the effect of an increase in real income on the demand for money?

It increases (A) Signup and view all the answers

What is the real money supply?

The total amount of goods and services that can be purchased with the nominal money (C) Signup and view all the answers

How does an increase in the required reserve ratio affect the nominal money supply?

It decreases the nominal money supply (D) Signup and view all the answers

What is the effect of an increase in the price level on the demand for money?

It increases (C) Signup and view all the answers

What is the role of the central bank in controlling the money supply?

To influence or control the money supply through monetary policy (A) Signup and view all the answers