(a)
Economic expansion and the demand for money.
(a)
Explanation of Solution
The expansion of the real economy is the period of
Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period of time.
Demand for money: The demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.
(b)
Inflation and the demand for money.
(b)
Explanation of Solution
Inflation is an economic situation where the general price level increases and the
Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.
(c)
Open market operations and the demand for money.
(c)
Explanation of Solution
In the open market operations when the Fed purchases the bonds, it leads to increase the money supply in an economy. On the other side, in the recession period, economic activities fall down and people do not have enough money to demand for goods and services. Therefore, the demand for money will decline in the recession. This increasing supply of money and decreasing demand for money will force the interest rate to decrease in the economy. Hence, the given statement is incorrect.
Money supply: Money supply refers to the total amount of monetary assets circulating in an economy during a particular period of time.
Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.
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Chapter 11 Solutions
Principles of Macroeconomics (11th Edition)
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