Part 2 Flashcards
An increase in the interest rate paid on deposits of a currency causes that currency
to appreciate against foreign currencies
A rise in the expected future exchange rate causes a…
A fall in the expected future exchange rate causes a …
rise in the current exchange rate
fall in the current exchange rate
A rise in the interest rate causes the demand for money
to fall. Aggregate demand for money falls when interest rates rises
/raises the cost of holding money and causes money demand to fall/
A rise in the average value of transactions (Price Level) carried out by a HH or firm causes money demand
to rise
/An individual’s need for liquidity rises when the average daily value of his transactions rises.
A rise in Real Nation Income (GDP)
raises the demand for money
/GDP rises, more G and S sold, real value of transaction raises/
If there is initially an excess supply of money…
If there is initially an excess demand
Interest Rates
Interest Rate falls
Interest rate rises
An increase in the money supply…
A fall in the money supply…
Given P and Y
lowers interest rate
raises the interest rate
An increase in real output
A fall in real output
Given P and Ms
raises the interest rate
lowers the interest rate
An increase in a country’s money supply causes its currency to…
while a reduction in the money supply causes its currency to
FOREX
depreciate
Appreciate
All else equal, an increase in a country’s money supply causes a proportional
increase in its price level
Also applies if it’s a permanent increase
A change in the supply of money has
Long Run
no effect on the long-run values of the interest rate or real output
