1. What is meant by the “demand for money”?
2. What is meant by the “transactions motive” for the demand for money.
Explain why and how the transactions demand for money depends on the rate of interest.
3. You are not responsible for the speculative motive” for the demand for money.
4. You are not responsible for the “Further Exploration” on p. 227.
5. Explain why and how the transactions demand for money depends on the level of income.
6. Explain why and how the transactions demand for money depends on the price level.
(We will ignore the price level for now, since we are assuming that prices remain constant).
7. Explain the graphical representation of the demand for money function in Figures 11.4 and 11.5.
What causes a movement along a given demand for money curve?
What causes a shift in the curve?
8. What determines the equilibrium rate of interest? Illustrate the determination of the
equilibrium rate of interest with a graph of the money market.
9. What is the effect of an increase (or a decrease) in the money supply by the Fed on the
equilibrium rate of interest. Illustrate this effect with a graph of the money market (see
Figure 11.7).
10. What is the effect of an increase (or a decrease) in the level of income on the equilibrium rate of
interest. Illustrate this effect with a graph of the money market (see Figure 11.8).
11. What is meant by “tight” monetary policy? What is meant by “easy” monetary policy?
12. Problem Set: 1, 4, and 7-9.