Which household is likely to have a higher MPC, a low income household or a high income household? Why? What is the opportunity cost of holding money? How is k related to the velocity of money?
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- Explain whether each of the following statements is true or false : A). An increase in the ratio of cash holdings to deposits raises the money multiplier. B). If real interest rates become negative, the neoclassical model of investment predicts there is now no limit to how much capital rms want to purchase.Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and prices) Derive (again!) the LM curve from considering how income increases affect moneydemand
- An individual who stores wealth in art rather than money will find that he A. Suffers larger real losses during periods of high inflation B. Has far more liquidity than most savers C. Will incur the higher transaction costs when he ultimately makes purchases D. Will have to resort to barter exchanging the art for desired goodsIf planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, andpotential output equals 34,000, what real interest rate must the Federal Reserve set to bring theeconomy to full employment?Derive two LM curves, the first when money demand is very sensitive to the interestrate, and the second where money demand is insensitive to the rate of interest. Show howthe slopes of the LM curves differ
- In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule? (Omit the unit and answer with the first decimal place.)"According to Keynesian theory, an increase in the money supply can cause interest rates to fall without affecting nominal income. In this case, how does the velocity of money change? Explain and demonstrate using the money market graph."Q36 The LM curve is flatter if the interest elasticity of demand for money- Select one: a. both may be possible b. none of the given options c. high d. low
- Both the portfolio choice and Keynes’s theories of thedemand for money suggest that as the relative expectedreturn on money falls, demand for it will fall. Whydoes the portfolio choice approach predict that moneydemand is affected by changes in interest rates? Whydid Keynes think that money demand is affected bychanges in interest rates?Calculate what happens to nominal GDP if velocityremains constant at 4 and the money supply increasesfrom $250 billion to $375 billionUsing the supply of money diagram (s), explain and demonstrate diagrammatically what happens to the interest rate, consumption, investment and aggregate demand, if the Central Bank sells government bonds to the public.
