Answer to Question #129531 in Macroeconomics for Claydon

Question

Q.2.1 The theory of the demand for money is based on John Keynes’ Liquidity
Preference Theory.
Give your own detailed explanation of liquidity preference theory and how the
demand for money curve is determined. Illustrate your answer graphically.
Note: You should include in your answer a detailed explanation of each
component of the demand for money as well as the determinants of these
components.
(25)

Q.2.2 Your prescribed text explains that the money stock (M) can be determined
endogenously or exogenously (i.e. there are two different approaches to
determining the value of M).
Explain which approach is used in the South African macroeconomy.

Answer 1

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