Refer to Figure 17-2. At which point are inflation expectations ...

[lilldybug07]

Refer to Figure 17-2. At which point are inflation expectations equal to the actual inflation rate?
 
  A) A B) B C) C D) all of the above

Question 2

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on
 
  the horizontal axis of the money demand curve.

[Jmfn03]

Answer to Question 1

A

Answer to Question 2

The money demand curve has a negative slope. An increase in the interest rate, the variable on the vertical axis, causes a decrease in the quantity of money demanded, the variable on the horizontal axis, because an increase in the interest rate increases the opportunity cost of holding money. Money earns little or no interest, so an increase in the interest rate induces people to reduce their holdings of money and switch into interest-bearing financial assets.

[lilldybug07]

TYSM

[bigcheese9]

Gracias!