Assume that there is an increase in perceived bankruptcy risk. As ...

[berenicecastro]

Assume that there is an increase in perceived bankruptcy risk. As a result of this we would expect to see
 
  a. income and interest rates to rise.
  b. money demand and interest rates to fall.
  c. money demand and interest rates to rise.
  d. money supply to rise and interest rates to fall.Figure 7-1

Question 2

Contrast the Cambridge and Fisher versions of the quantity theory. Explain why the Cambridge version of the quantity theory represents a more modern monetary theory when compared to Fisher's version.
 
  What will be an ideal response?

[Perkypinki]

Answer to Question 1

C

Answer to Question 2

In the Fischer version, money circulated at a fixed rate (velocity) which was completely exogenous and not related to the demand for money. The Cambridge focus was on the quantity theory as a theory of the demand for money. The proportional relationship between the quantity of money and the price level resulted from the fact that the proportion of nominal income people wished to hold in the form of money (k) was constant and the level of real output was fixed by supply conditions.

[berenicecastro]

Excellent

[peter]

TYSM