This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: What are the main factors that determine aggregate money demand? What will be an ideal ... (Read 72 times)

formula1

  • Hero Member
  • *****
  • Posts: 666
on: Jun 30, 2018
What are the main factors that determine aggregate money demand?
 
  What will be an ideal response?

Question 2

This question concerns the mechanism of a reserve currency standard. Two countries, X and Y, have two currencies, x and y, fixed to the reserve currency, the U.S. dollar. Suppose the exchange rate between x and the U.S. dollar is 3x per dollar.
 
  Suppose the exchange rate between y and the U.S. dollar is 5y per dollar. Explain (using numbers) the mechanism if the x-y exchange rate was 0.5 x per y.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

k.lashomb

  • Sr. Member
  • ****
  • Posts: 346
Reply #1 on: Jun 30, 2018
Answer to Question 1

The three main factors are interest rate, the price level and real national income. A rise in the interest rate causes individuals in the economy to reduce their demand for money. If the price level rises, individual households and firms will spend more money than before. When real national income (GNP) rises the demand for money will also rise.

Answer to Question 2

At this exchange rate, an investor can make an arbitrage profit by selling 100 to the central bank of X (receiving 300 x), then selling your 300 x to the foreign exchange market for 300 x/(0.5 x per y) = 600 y, then buying U.S. dollars in the amount of 120 from the central bank of Y. Thus the foreign exchange market will bid the x-y exchange rate up to 0.6 x per y.


formula1

  • Hero Member
  • *****
  • Posts: 666
Reply #2 on: Jun 30, 2018
Correct answers!


k.lashomb

  • Sr. Member
  • ****
  • Posts: 346
Reply #3 on: Jun 30, 2018
Great! Please up vote :D


« previous next »
 

Did you know?

The average person is easily confused by the terms pharmaceutics and pharmacology, thinking they are one and the same. Whereas pharmaceutics is the science of preparing and dispensing drugs (otherwise known as the science of pharmacy), pharmacology is the study of medications.

Did you know?

Despite claims by manufacturers, the supplement known as Ginkgo biloba was shown in a study of more than 3,000 participants to be ineffective in reducing development of dementia and Alzheimer’s disease in older people.

Did you know?

The training of an anesthesiologist typically requires four years of college, 4 years of medical school, 1 year of internship, and 3 years of residency.

Did you know?

Between 1999 and 2012, American adults with high total cholesterol decreased from 18.3% to 12.9%

Did you know?

The ratio of hydrogen atoms to oxygen in water (H2O) is 2:1.

Internal structures of main sequence stars, convection zones with arrowed cycles and radiative zones Internal structures of main sequence stars, convection zones with arrowed cycles and radiative zones
Factors affecting vital signs of older adults Factors affecting vital signs of older adults
Overeating: Social and Environmental Factors Overeating: Social and Environmental Factors
Main Hall, Trajan's Market Main Hall, Trajan's Market
Limiting factors restrain population growth Limiting factors restrain population growth
If P(θ) = (√3 /2, -1/ 2), determine the coordinates of P (θ + 90 °) using the unit circle If P(θ) = (√3 /2, -1/ 2), determine the coordinates of P (θ + 90 °) using the unit circle
Video: Autonomic Nervous System Animation

For a complete list of videos, visit our video library