12 Questions
What happens to the price level (P) when the quantity of money (M) is doubled?
P is doubled
How does an increase in the desire to hold money (K) affect the price level according to the text?
Price level decreases
In the context of the text, what does a higher value of K signify for the price-level and value of money?
Higher value of K leads to lower price-level and lower value of money
Which relationship best describes the connection between the quantity of money (M) and the price level (P) according to the text?
Direct relationship
What is the impact on price-level when demand for money increases according to the text?
Price level decreases
How does a reduction in present expenditure due to an increase in the desire to hold money affect the price level?
Price level decreases
What is one of the main criticisms of the cash balance approach mentioned in the text?
It does not consider the impact of real forces on price-level changes.
What is a key difference between central banks and commercial banks?
Central banks do not seek profit, while commercial banks aim to make a profit.
What is a responsibility typically associated with central banks, as mentioned in the text?
Regulating and supervising the activities of commercial banks.
Why is the assumption of 'ceteris paribus' considered unrealistic in relation to the cash balance approach?
It assumes all other variables remain constant, which is not practical in reality.
What aspect does the cash balance approach neglect, according to the text?
The role of rate of interest and non-monetary factors.
What does a central bank typically NOT do with regards to deposits from the public?
Pay interest on them.
Learn about the direct and proportionate relationship between the quantity of money (M) and the price level (P) in an economic equation. Understand how changes in money supply impact price levels with a practical example.
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