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Draw High Test 2 Fa 25) in the picture below, the central bank is bonds in order to fix a gap
Draw High Test 2 Fa 25) in the picture below, the central bank is bonds in order to fix a gap . Mos MS M ?? 0 A) Selling; recessionary Bl Selling; inflationary (C) Buying, recessionary D) Buying; inflationary 26) Which of the following is TRUE regarding the demand for money? A) Transactions demand is inversely related to the interest rate B) Asset demand is unrelated to the interested rate C) Total demand is directly related to the interest rate D) Asset demand is inversely related to the interest rate 27) What is the meaning of a liquidity trap? A) When using monetary policy, central banks have difficulty lowering the interest rate B) When using monetary policy, central banks have difficulty raising the interest rate ( When using man
25) in the picture below, the central bank is bonds in order to fix a gap. . MS MS M A) Selling, recessionary Bl Selling; inflationary (C) Buying; recessionary D) Buying, inflationary
Expert Solution
Ques 25 ) Part C Buying, recessionary
since money supply increased, govt is buying bonds to correct a recessionary gap.
Ques 26) Part D Asset demand is inversely related to interest rate.
If the interest rate rises, the demand for other assets fall and vice versa since in this case owning an asset would not be of much use/profitable as opposed to gaining from interest
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