ECON 330 Lecture Notes - Lecture 24: Monetarism, Cash Machine, John Maynard Keynes

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amethystgrasshopper44

17 Nov 2016

School

University of Arizona

Department

Economics

Course

ECON 330

Professor

Neumann

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Document Summary

Transactions demand for money: the stock of money people hold to pay everyday predictable expenses. Precautionary demand for money: the stock of money people hold to pay unpredictable expenses. Speculative demand for money: the stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets. Demand for money curve: a curve representing the quantity of money that people hold at different possible interest rates, ceteris paribus. Monetarism: the theory that changes in the money supply directly determine changes in prices, real gdp, and employment. Keynesian economics: the theory, first advanced by john. Maynard keynes, that the role of the federal government is to increase or decrease aggregate demand to achieve economic goals. Velocity of money: the average number of times per year a dollar of the money supply is spent on final goods and services.

Related Questions

A. Match the correct motive (Precautionary Demand for money / Speculative Demand for money / Transactional Demand for Money) for holding money to the following definitions:

1. The stock of money people hold to take advantage of future changes in the prices of financial assets other than money.

2. The stock of money people hold to pay unpredictable expenses.

3. The stock of money people hold to pay everyday predictable expenses.

B. Identify the motive for holding money in the following scenario:

Musashi moves to a smaller apartment. Because of the lower monthly rent, he places a larger share of funds from his paycheck in a retirement fund and a smaller share in his savings account. This is an example of a decrease in Musashi's ____________________ demand for money.

C. Complete the following statement about the relationship between the interest rate and speculative balances.

As the interest rate rises, the opportunity cost of holding money _______________ and people ______________ their speculative balances.

blackcaribou48

1. Match the correct motive (Precautionary, Speculative, or Transactions) for holding money to the following definitions.

Definition
The stock of money people hold to pay unpredictable expenses
The stock of money people hold to take advantage of future changes in the prices of financial assets other than money
The stock of money people hold to pay everyday predictable expenses

2. Identify the motive for holding money in the following scenario.

Daesun moves to a smaller apartment. Because of the lower monthly rent, he places a larger share of funds from his paycheck in a retirement fund and a smaller share in his savings account. This is an example of a decrease in Daesun's (Precautionary, Speculative, or Transactions) demand for money.

Complete the following statement about the relationship between the interest rate and speculative balances.

3. As the interest rate falls, the opportunity cost of holding money (rises, falls), and people (decrease, increase) their speculative balances.