CH 15

Question 1

Monye are three things: ???

Answer 1

A medium of exchange
A unit of account or measure of value
A store of value that is easily liquidated

Question 2

Money supply is ?

Answer 2

The total amount of currency and checking deposits of firms and households

Question 3

The central bank controls

Answer 3

the money supply

Question 4

Explain the reosning behind the demand for money.

Answer 4

The demand for money is primarily based on expected rate of return and liquidity. Money does not accumulate intreste so given the chans people are more likely to invest instead of having money. If the intreste rate appreciate then the demand for money depreciate and vice versa.
Money are mostly a medium of exchange and by needing to do more transactions then the demand for money will appreciate.

Question 5

Aggregate money demand is?

Answer 5

the total amount of demand for money by all households and firms in the economy

Question 6

What are the three factors that deterine the aggregate money demand?

Answer 6

Intreste rate, price level, and real national income

Question 7

If R appreciate

Answer 7

M depreciate

Question 8

R ?

Answer 8

Intreste rate

Question 9

If P appreciate

Answer 9

M appreciate

Question 10

If Y appreciate

Answer 10

M appreciate

Question 11

M (demand) = ?

Answer 11

P x L(R,Y)

Question 12

By equalibirum in the money market this equation holds true

Answer 12

M (supply) / P = L (R, Y)

Question 13

Real money supply

Answer 13

M (supply) / P

Question 14

If M(s) increases then, how does the schedule in the money market change

Answer 14

Real money supply shifts right

Question 15

Money market consists of

Answer 15

intreste rate, GNP (Y), aggregate real money demand

Question 16

Aggregate real money demand ?

Answer 16

L (R, Y)

Question 17

Y appreciates then…?

Answer 17

L (R, Y) shifts right and R appreciate

Question 18

Y depreciates then…?

Answer 18

L (R, Y) shifts left and R depreciate

Question 19

An increase in a countrys money supply causes its currency to…?

Answer 19

depreciate in the forex market

Question 20

An decrease in a countrys money supply causes its currency to…?

Answer 20

appreciate in the forex market

Question 21

What happens in with the price level in the short and long run?

Answer 21

In the short run the price level stay fixed while in the long run it varies

Question 22

By combining the forex and money market we can see …?

Answer 22

How the money market impacts the forex market and changes the exchange rate

Question 23

Y ?

Answer 23

Output

Question 23

Money marekt, long run equalibrium price level

Answer 23

P = M (s) / L (R, Y)

Question 24

P = M (s) / L (R, Y)

Answer 24

Money marekt, long run equalibrium price level

Question 25

If M (s) increases what happens to the price level and aggregate money demand?

Answer 25

The price level increase with about the same amount as the M (s), while L (R, Y) remain the same

Question 26

An premenant increase in the Money supply leads to …?

Answer 26

a proportional long run depreciation of the currency.

Question 27

Inflation

Answer 27

Price level appreciate

Question 28

Delaftion

Answer 28

Price level depreciate

Question 29

M ?

Answer 29

The nominal money supply

Question 30

National income ?

Answer 30

Y

Question 31

Real money demand ?

Answer 31

L

Question 32

“Real money axis”

Answer 32

measures the amount of real money supplied and demanded

Question 33

The L curve measures?

Answer 33

The amount of real money demanded

Question 34

What is on the measured on the vertical axis in the money marekt diagram?

Answer 34

Rates of return axis, which shows the interste rate line based on where the demand and supply of the money market align.

Question 35

P ?

Answer 35

Price level aka. what the thing costs