In recent years, the increasing relative wage of skilled labor ...

[Bob-Dole]

In recent years, the increasing relative wage of skilled labor has been mostly due to
 
  A) a decrease in the supply of skilled labor that exceeds the decrease in demand.
  B) an increase in the demand for skilled labor that exceeds the increase in supply.
  C) a decrease in the supply of, and increase in the demand for, skilled labor.
  D) government laws promoting the hiring of skilled labor.
  E) government subsidies provided to college students.

Question 2

First, explain why the money demand curve is downward sloping. Second, explain what factor(s) will cause shifts in the money demand curve.
 
  What will be an ideal response?

[scikid]

Answer to Question 1

B

Answer to Question 2

The money demand curve is downward sloping (with the interest rate on the vertical axis). It is assumed that money pays no interest. At the same time, individuals earn interest when they hold bonds. So, as the interest rate increases, individuals are more willing to incur the costs associated with converting bonds to money when they wish to buy goods. So, an increase in the interest rate causes a reduction in money demand. Money demand depends on the level of transactions and on the interest rate. As the level of transactions increases, individuals will increase money demand. Assuming that nominal income is correlated with nominal transactions, an increase in nominal income will cause an increase in money demand and shifts in the curve.