Describe the impact of financial innovations on the demand for money and velocity.
Answer to relevant QuestionsSuppose that expected inflation rises by 3 percent at the same time that the yields on money and on non-money assets both rise by 3 percent. What will happen to the demand for money? What if expected inflation rose by only 2 ...Which of the following factors would increase the transactions demand for money? Explain your choices.(a) Lower nominal interest rates.(b) Rumors that a computer virus had invaded the ATM network.(c) A fall in nominal income.Consider a country where the level of excess reserves fluctuates widely and unpredictably. Would such a country be a good candidate for a money growth rule to guide monetary policy? Explain your answer. Explain how and why the components of aggregate expenditure depend on the real interest rate. Be sure to distinguish between the real and nominal interest rates, and explain why the distinction matters. Suppose a natural disaster wipes out a significant portion of the economy’s capital stock, reducing the potential level of output. What would you expect to happen to the long-run real interest rate? What impact would ...
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