Q: Which of the following questions are correct regarding the financial market? (Please provide a reason why/ why not)
Good day, some help with the following will be much appreciated. Please provide justifications. Thanks!
Which of the following questions are correct regarding the financial market? (Please provide a reason why/ why not)
a) The purpose of the financial market model is to give us an explanation of how the interest rate is determined
My thoughts: I was under the impression the purpose was to explain the impact of a change in interest rate, i.e. the 'domino effect' caused by a change in interest rate.
b) The nominal money supply is an endogenous variable and the interest rate is an exogenous variable in the financial market model.
My thoughts: I think the interest rate is an exogenous var, but
c) Since the nominal money supply is not influenced by the interest rate in our model, but is determined by the central bank it can be regarded as an exogenous variable.
My thoughts: what is nominal MS? I know an exogenous MS is independent of i, just not sure if that MS is nominal.
d) The part of the demand for money that is influenced by the level of output and income that will shift the money demand curve rightwards or leftwards is an exogenous variable in our model.
My thoughts: I agree. I this case, MS is endogenous.
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