Suppose that a sharp downturn in the price of a country's prime manufacturing product results in a terrible recession and a massive decline in the general income level of the citizens. Other things constant, what would be the recession's most probable effect on money demand in the country?
a. People will hold more money for any purpose, resulting in a decline in money demand.
b. Local M1 money demand will rise.
c. The transactions demand for money will fall such that the quantity of money demanded will be lower at any given interest rate level.
d. The speculative demand for money will fall, causing a downward movement along the money demand curve.
e. The precautionary demand for money will increase, causing an upward shift in the money demand curve.
Question 2
If input prices rose and production technology improved at the same time, as a result: larger quantities to be exchanged.
a. prices would rise.
b. prices would fall.
c. larger quantities to be exchanged.
d. we would not know which direction either prices or quantities exchanged would be altered without more information.
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