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?

    <p>Sensitivity of Md to changes in income</p> Signup and view all the answers

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

    <p>To purchase goods and services</p> Signup and view all the answers

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

    <p>Sensitivity of Md to changes in interest rate</p> Signup and view all the answers

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

    <p>It increases</p> Signup and view all the answers

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

    <p>It increases</p> Signup and view all the answers

    What is the real money supply?

    <p>The total amount of goods and services that can be purchased with the nominal money</p> Signup and view all the answers

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

    <p>It decreases the nominal money supply</p> Signup and view all the answers

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

    <p>It increases</p> Signup and view all the answers

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

    <p>To influence or control the money supply through monetary policy</p> Signup and view all the answers

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