Note that the study cited recasts the analysis with

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Note that the study cited recasts the analysis with interest-earning checkingdeposits in the role of “bonds” and cash in the role of “non-interest-earning checking deposits”.Any factorthat decreases the cost of converting deposits to cash should decrease the optimal amount of cash held.
Towards the end of 1999, there were concerns over the so-called “Y2K” problem.The rumor was spreadthat the calendar shift at midnight, Jan. 1, 2000 would cause computer systems (including ATMs) to fail.Ifthis rumor was believed, how should citizens have reacted?Thinking ahead, how might the Fed havechanged the money supply as the Y2K deadline approached?
ECONOMICSINPRACTICE(CONTINUED):Although most households do not actively trade bonds, most ofus are influenced by interest-earning opportunities (money market accounts, certificates of deposits, and soon) and do not hold all of our funds as cash or in a checking account.What has the development of debitcards done to the demand for cash?Some banks now charge fees when cash is withdrawn from an ATM—what will this do to the optimal amount of cash held?
Practice11.An increase in the interest rate willthe quantity of money demanded for transactions andthe quantity of money demanded for speculation.
12.The demand for money curve will shift to the left when(a)the interest rate increases.(b)the price level increases.
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Chapter 25 / Exercise 67
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18 Study Guide to Principles of Macroeconomics(c)aggregate output decreases.(d)the price of bonds is expected to decrease.ANSWER: (c)Less money will be demanded if the dollar volume of transactions decreasesbecause of a price level decrease or an output level decrease. Changes (Option (a))or expected changes (Option (d)) in the interest rate don’t cause a shift in theposition of the demand curve.

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Term
Fall
Professor
Mr. Kemmerer
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Exploring Economics
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