1. Why is the use of the discount rate less effective in influencing money supply than the statutory reserve requirement ratio？

2. Explain factors that cause the credit creation not to achieve its maximum amount.

3. Using a diagram, explain the effect of fluctuation in interest rate on Keynes’ money demand for transactions & precautionary and Keynes' money demand for speculation.

4. Using a diagram and starting from a disequilibrium where Md > Ms, explain how an interest rate equilibrium is determined in the money market according to Keynesian view.

5. Describe the effect of a reduction in national income on the interest rate equilibrium and the money demand curve according to Keynesian view. Will the effect be the same on the money demand curve if there is an increase in the interest rate? Why?

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1 The use of the discount rate is less effective in influencing money supply than the statutory reserve requirement ratio because the discount rate is the interest rate set by the central bank that it ... View the full answer