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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 26, Problem 4SQ
Textbook Problem
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Other things being equal, the quantity of money that people want to hold can be expected to

  1. a. increase as the interest rate increases.
  2. b. decrease as the interest rate increases.
  3. c. decrease as real GDP increases.
  4. d. None of the answers are correct.

To determine

The interest rate and the quantity of money held by people.

Explanation of Solution

The barter system was a market exchange system that existed in the ancient period. According to the barter system, one commodity is exchanged for another commodity in the market. Thus, there should be double co-incidence of needs for the exchange to take place in the market. This problem was corrected with the establishment of money. Money is anything that serves as a medium of exchange in the market, unit of account as well as the store of value in the economy. There are many forms of money such as paper currencies, metallic coins, bills, and so forth. There are mainly three demands for money and they are speculative demand for money, precautionary demand for money, and transaction demand for money.

Option (b):

The rate of interest indicates the amount of interest earned for the deposits that the people make with the depository institutions in the economy. When the rate of interest is higher, it means that the earning from deposits is higher. As a result, people will hold less quantity of money in the economy. Thus, as the rate of interest increases, the quantity of money held by the people will decrease. Thus, option 'b' is the correct answer...

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Chapter 26 Solutions

Economics For Today
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Ch. 26.A - Assume the economy is operating at a real GDP...Ch. 26.A - Assume the economy is experiencing an inflationary...Ch. 26.A - Assume the economy is in short-run equilibrium at...Ch. 26.A - A policy to do nothing and allow the economy to...Ch. 26.A - Assume the economy is experiencing a recessionary...Ch. 26.A - Assuming the economy is in a recession, Keynesian...Ch. 26.A - Assume the economy is in short-run equilibrium at...Ch. 26.A - Assume the economy is experiencing an inflationary...Ch. 26.A - In part (a) of Exhibit A-3, the economy is...Ch. 26.A - Assume that the economy depicted in part (a) of...Ch. 26.A - In part (b) of Exhibit A-3, the economy is...Ch. 26.A - Assume that the economy depicted in part (b) of...Ch. 26 - How much money do you keep in cash or checkable...Ch. 26 - What are the basic motives for the transactions...Ch. 26 - Suppose a bond pays annual interest of 80. Compute...Ch. 26 - Using the demand and supply schedule for money...Ch. 26 - Assume you are the chair of the Federal Reserve...Ch. 26 - A monetarist investigator might say that the sewer...Ch. 26 - What is the quantity theory of money, and what...Ch. 26 - Exhibit 6 shows the monetarist monetary policy...Ch. 26 - Explain the difference between the Keynesian and...Ch. 26 - Based on the quantity theory of money, what would...Ch. 26 - Suppose the investment demand curve is a vertical...Ch. 26 - Why is the shape of the aggregate supply curve...Ch. 26 - The demand for money that households keep for...Ch. 26 - The quantity of money held in response to interest...Ch. 26 - The speculative demand for money a. varies...Ch. 26 - Other things being equal, the quantity of money...Ch. 26 - A decrease in the interest rate, other things...Ch. 26 - Which of the following statements is true? a. The...Ch. 26 - In Exhibit 11, assume an equilibrium with an...Ch. 26 - According to Keynesians, an increase in the money...Ch. 26 - While the classicists believed that both velocity...Ch. 26 - In Exhibit 12, when the money supply increases...Ch. 26 - In Exhibit 12, if the interest rate falls from i1...Ch. 26 - In Exhibit 12, a shift in aggregate demand from...Ch. 26 - The monetarist transmission mechanism through...Ch. 26 - The equation of exchange states a. MV = PQ. b. MP...Ch. 26 - The quantity theory of money assumes that the...Ch. 26 - The transactions demand for money is the demand...Ch. 26 - People react to an excess supply of money by a....Ch. 26 - The belief that the velocity of money is not...Ch. 26 - The monetary rule is the view of the a. Keynesians...Ch. 26 - Which of the following statements is true? a....

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