a. Write down the quantity theory of money and explain it. b. According to the Keynesian...
a. Write down the quantity theory of money and explain it.
b. According to the Keynesian theory of money demand ( liquidity preference), the velocity of money will not be fixed. Derive the equation of velocity under the liquidity pref erence and explain why the velocity will NOT be fixed any more.
c. According to the portfolio theories of money demand, what are the four factors that determine money demand? What changes in these factors can increase the demand for money?
Homework Answers
A) :-Quantity Theory of Money is the oldest and popular theory of inflation, It states that inflation is caused by a continuously increase in the supply of money
Quantity theory of money show relationship between money supply and the price level. It's also an equation showing the relationship between M, V, P and Q.
It equation is MV=PQ
C):-A. Expected return.
B. Price level.
C. Wealth.
D. Liquidity of other assets.
E. Risk of other assets.
ii) :-What changes in these factors can increase the demand for money
A=expected return
C=wealth
D=liquidity of other assest
E=risk of other assest
The demand for money increases when wealth or the risk associated
with other assets increases, and it decreases when expected return
or liquidity of other assets increases or when the risk of
inflation increases.
Sorry for b question
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