Compare quantitiy theory of money and liquidity preference theory in terms of determinants of money demand, interest ela...
Compare quantitiy theory of money and liquidity preference theory in terms of determinants of money demand, interest elasticity and transmission mechanism
Homework Answers
Ans
1 in quantity theory money demand arises to transactions. Greater the transactions greater the demand for money. In income which determines transactions is also determinant of demand for money
In liquidity preference theory one major determinantsare no. Of transactions to be done. However people akso demand money for precautionary motive and for speculative motive.
2 money is not interest elastic in quantity theory but there us inverse relationship between interest rate and money demand in classical theory.
3 in classical theory an increase in supply of money increases prices. This rise in prices increase demand for goods. As a result employment and output rise
In liquidity preference theory higher money supply de reases interest rate. Lower interest rate promotes more investment and hence more production of goods. As a result employment also rises
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Compare quantitiy theory of money and liquidity preference theory in terms of determinants of money demand, interest ela...
The implication of theory of liquidity preference on the interest rate explains the downward sloping money...
The implication of theory of liquidity preference on the interest rate explains the downward sloping money demand curve. Analyse this using an appropriate diagram.
36. According to liquidity-preference theory, why is the g? money-demand curve downward slopin a. because interest...
36. According to liquidity-preference theory, why is the g? money-demand curve downward slopin a. because interest rates rise as the Bank the qua b. because interest rates fall as the Bank of Canada reduces the supp c. because people will want to hold less money as the cost of doing so d. because people will want to hold more money as the cost of doing rest rates fall as the ofCanada reduces the quantity of money demanded anada reduces the...
Question 1 The theory of liquidity preference implies that the equilibrium in the money market is...
Question 1 The theory of liquidity preference implies that the equilibrium in the money market is achieved by adjustments in Not yet answered Select one: Marked out of 2.00 a. the interest rate. P Flag question b. the aggregate demand. c. the menu cost. O d. real wealth. Question 2 Assume that the multiplier is 6. If there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to Not yet answered Marked out of...
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains...
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains the downward sloping money demand curve. Analyse this using an appropriate diagram.
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains...
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains the downward sloping money demand curve. Analyse this using an appropriate diagram.
According to the theory of liquidity preference, interest rates should go up when there is a decrease in money supply.
True of False.c) According to the theory of liquidity preference, interest rates should go up when there is a decrease in money supply. d) Credit Cards are considered money because they are a medium of exchange. e) Gold is an example of fiat money.
30. If there is an excess demand for money using the liquidity preference theory) A. Individual...
30. If there is an excess demand for money using the liquidity preference theory) A. Individual sell bonds causing interest rates to fall B. Individuals sell bonds causing interest rates to rise C. Individuals buy bond causing interest rates to fall D. Individuals buy bonds causing interest rates to rise 31. If the money demand curve shifts to the left. Interest rates ----and bond prices A. Fall; rise B. Fall; fall C. Rise; rise D. Rise;fall 32. When the growth...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will nominal interest rates in the long run. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 8. If neither investment nor consumption depends on the interest rate, then the IS curve is , and_ policy has no effect on output. A) vertical; monetary B) horizontal; monetary...
The theory of liquidity preference implies that an increase in the price level shifts the Select...
The theory of liquidity preference implies that an increase in the price level shifts the Select one: a. money demand curve to the right, so the interest rate decreases. 0 b. money demand curve to the left, so the interest rate increases. C. money demand curve to the right, so the interest rate increases. d. money demand curve to the left, so the interest rate decreases. If the marginal propensity to consume is 6/7, then the multiplier is 7. Select...
2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the...
2. The theory of liquidity preference and the
downward-slopingaggregate demand curve
The following graph shows the money market in a hypothetical
economy. The central bank in this economy is called the Fed. Assume
that the Fed fixes the quantity of money supplied.
Suppose the price level increases from 90 to 105.
Shift the appropriate curve on the graph to show the impact of
an increase in the overall price level on the market for money.
After the increase in the...
36. According to liquidity-preference theory, why is the g? money-demand curve downward slopin a. because interest rates rise as the Bank the qua b. because interest rates fall as the Bank of Canada reduces the supp c. because people will want to hold less money as the cost of doing so d. because people will want to hold more money as the cost of doing rest rates fall as the ofCanada reduces the quantity of money demanded anada reduces the...
Question 1 The theory of liquidity preference implies that the equilibrium in the money market is achieved by adjustments in Not yet answered Select one: Marked out of 2.00 a. the interest rate. P Flag question b. the aggregate demand. c. the menu cost. O d. real wealth. Question 2 Assume that the multiplier is 6. If there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to Not yet answered Marked out of...
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains the downward sloping money demand curve. Analyse this using an appropriate diagram.
Question 4. (12 marks) The implication of theory of liquidity preference on the interest rate explains the downward sloping money demand curve. Analyse this using an appropriate diagram.
30. If there is an excess demand for money using the liquidity preference theory) A. Individual sell bonds causing interest rates to fall B. Individuals sell bonds causing interest rates to rise C. Individuals buy bond causing interest rates to fall D. Individuals buy bonds causing interest rates to rise 31. If the money demand curve shifts to the left. Interest rates ----and bond prices A. Fall; rise B. Fall; fall C. Rise; rise D. Rise;fall 32. When the growth...
7. According to the theory of liquidity preference, decreasing the money supply will nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will nominal interest rates in the long run. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 8. If neither investment nor consumption depends on the interest rate, then the IS curve is , and_ policy has no effect on output. A) vertical; monetary B) horizontal; monetary...
The theory of liquidity preference implies that an increase in the price level shifts the Select one: a. money demand curve to the right, so the interest rate decreases. 0 b. money demand curve to the left, so the interest rate increases. C. money demand curve to the right, so the interest rate increases. d. money demand curve to the left, so the interest rate decreases. If the marginal propensity to consume is 6/7, then the multiplier is 7. Select...
2. The theory of liquidity preference and the
downward-slopingaggregate demand curve
The following graph shows the money market in a hypothetical
economy. The central bank in this economy is called the Fed. Assume
that the Fed fixes the quantity of money supplied.
Suppose the price level increases from 90 to 105.
Shift the appropriate curve on the graph to show the impact of
an increase in the overall price level on the market for money.
After the increase in the...
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