Suppose that a change in government regulations allows banks to start paying interest on checking accounts. a. How does this change affect the demand for money? b. What happens to the velocity of money? c. If the Fed keeps the money supply constant, what will happen to output and prices in the short run and in the long run?

Brief Principles of Macroeconomics (MindTap Course List)
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Author:N. Gregory Mankiw
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Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section16.3: Using Policy To Stabilize The Economy
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Suppose that a change in government regulations allows banks to start paying interest on checking accounts. a. How does this change affect the demand for money? b. What happens to the velocity of money? c. If the Fed keeps the money supply constant, what will happen to output and prices in the short run and in the long run?
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