Answer to Question #129476 in Macroeconomics for Adi

Question

The total demand for money is equal to the transactions demand plus the asset demand

for money.

(a) Assume that each dollar held for transactions purposes is spent on the average five

times per year to buy final goods and services.

If the nominal GDP is $10,000 billion

($10 trillion), what is the transaction demand?

(b) The table below shows the asset demand at certain rates of interest.

Using your answer to part (a), complete the table to show the total demand for money at various rates of interest.

Interest rate Asset demandTotal demand

(in %)(billions)(billions)

10

$

30

$_____

8

60

_____

6

90

_____

4

120

_____

(c) If the money supply is $2,060 billion, what will be the equilibrium rate of interest?

(d) If the money supply rises, will the equilibrium rate of interest rise or fall?

(e) If GDP rises, will the equilibrium rate of interest rise or fall?

Answer 1

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