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Chapter 20: Q 11. (page 547)
In Keynes鈥檚 analysis of the speculative demand for money, what will happen to demand for money if people suddenly expect that the normal level of the interest rate has fallen? Explain your answer.
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Identify three factors that can shift the aggregate demand curve to the right and three different factors that can shift the aggregate demand curve to the left.
Suppose that a plot of the values of M2 and nominal GDP for a given country over years shows that these two variables are very closely related. In particular, a plot of their ratio (nominal GDP/M2) yields very stable and easy-to-predict values. On the basis of this evidence, would you recommend that the monetary authorities of this country conduct monetary policy by focusing mostly on the money supply rather than on setting interest rates? Explain.
What evidence is used to assess the stability of the money demand function? What does the evidence suggest about the stability of money demand, and how has this conclusion affected monetary policymaking?
鈥淧ersistent budget deficits always lead to higher inflation.鈥� Is this statement true, false, or uncertain? Explain your answer
If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain your answer.
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