The desired amount of money for transaction balances (a) (b) (c) (d) (e) 7. vari
ID: 1113424 • Letter: T
Question
The desired amount of money for transaction balances (a) (b) (c) (d) (e) 7. varies positively with national income. varies positively with interest rates. varies negatively with the value of national income. varies negatively with the price level. will be zero if there are interest-bearing assets. 8. Precautionary balances increase if (a) (b) (c) business transactions became more uncertain. interest rates increased. people were expecting securities prices to rise. national income fell. (d) (e) the market prices of bonds fall. 9. Firms' speculative demand for money balances (a) (b) (c) (d) applies to bonds but not to other interest-earning assets. varies positively with national income. assumes that the opportunity cost of holding cash balances is zero. suggests that firms hold money in order to avoid or reduce the risk associated with increases in future interest rates and future decreases in bond prices. deals with the uncertainty of future payments and receipts. (e) An increase in the price level (a) 10. decreases the demand for money. increases the demand for money (b) (c) (d) (e) has no effect on the demand for money. causes a movement up the Mp curve. causes a movement down the money demand curve. Which of following causes the Mo curve to shift up and to the right? (a) (b) (c) (d) (e) 11. An increase in the interest rate. A decrease in the price level. A decrease in the interest rate. An increase in GDP A recessionary gap. Monetary Equilibrium and National Income This section outlines the monetary transmission mechanism of monetary shocks on Y and P in short run and the long run. First, you need to understand the condition for monetary equilibrium. Simply stated, monetary equilibrium occurs when the demand for money is equal to th supply: the intersection of the Mp function and the money supply curve (Mo) The money nst curve is vertical; the textbook assumes that the supply of money does not depen the supply on the interest rateExplanation / Answer
7) Answer is A. An increase in GDP of an economy means increase in total value of transactions . If so As GDP increases the transaction demand for money increases. The transaction demand for money balances varies positevely with national income.
8) answer is A. The demand for money also depends on precautionary motive of money. Inorder to meet the unexpected fluctuations in the expenditure level or if business transactions becomes uncertain the people keep some money as precaution.
9) answer is C. they assumes that opportunity cost for holding money for transaction is zero so that there is no return from holding money they will invest in some assets and it will be done using the money which is set for speculative purposes.
10) answer is B. an icrease in price level results in the increase in the demand for money as people do transactions with the money. As the price increases they need more money so the demand for money increases.
11) answer A. As there is an increase i interest rate the demand for money curve will shift to right indicating there is an increase in the demand for money when interest rate increases.