Why the theory of liquidity preference assumes that the nominal supply of money is determined by the

a. level of real output only.

b. interest rate only.

c. level of real output and by the interest rate.

d. Federal Reserve.

answer

watching

474

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Namita kumariLv6

28 Sep 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

The Federal Reserve expands the money supply by 5 percent:

a. Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate.
b. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change
in the interest rate on output and the price level in the short run.
c. When the economy makes the transition from its short-run equilibrium to its new long-run equilibrium, what will happen to the price level?
d. How will this change in the price level affect the demand for money and the equilibrium interest rate?
e. Is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run?

ceruleanpig915

The reason why the money supply curve is vertical is that

a. the real income does not influence the quantity of money supplied

b. the price level does not influence the level of spending

c. only the interest rate influences the quantity of money supplied

d. the Federal Reserve sets the money supply

raspberrygoat38

During the depression, the U.S central bank, the Federal Reserve, enacted policies that increased the money supply by 6%.

1) What happens to the level of output and the price level in the shor- run and in the long-run?

2) Assume that the velocity is constant, what are the percentage change of output and price level in the short run and long run? (Hint: use quantity theory of money).

3) What happens to unemployment in the short-run and long-run? (Hint: Okun's law can be summaries in the following equation: in unemployment rate =

% in real GDP )

4) What happens to the real interest rate in the short-run and long-run? (Hint: Use the model of real interest rate in Chapter 3, to see what happens when output changes)