ECU22012 Intermediate Economics B Problem Set 2
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Intermediate Economics B
Problem Set 2
1. First, explain why the money demand curve is downward sloping. Second, explain what factor(s) will cause shifts in the money demand curve.
2. Graphically illustrate and explain what eﬀect a purchase of bonds by the central bank will have on the money market.
3. Explain why money demand is positively related to income and negatively related to the nominal interest rate on bonds.
4. Use the market for central bank money to answer this question. Graphically illus- trate and explain what eﬀect an increase in the reserve deposit ratio will have on this market and on the equilibrium interest rate.
5. What is the money multiplier and what factors determine its size?