Chapter 26 Problems Macro.docx - Jillian Franko Chapter 26...

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Jillian Franko Chapter 26 Problems 3. The demand curve for money depends on two factors: the interest rate and nominal income. Nominal income involves both the overall price level P and real income Y . If the Fed decided to hold the money supply constant Y, deflation would cause the price level P to fall. Because of deflation, nominal income PY would cause the money demand curve to shift to the left, and the equilibrium interest rate would fall. 16. The transaction motive focuses on a person's reasoning to hold onto money- to buy things. The speculation motive focuses on holding onto bonds instead of money in hopes of earning more money in the future. With the transaction

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