Answer the Questions Below

question 7

Essay

Answer the questions below:
(A)Explain how each of the following would affect the money demand function:
1.An increase in the cost of living
2.Financial innovations that make it possible to write checks against saving and money market accounts
3.Financial innovations that make it possible to electronically pay bills out of saving and money market accounts
4.The December holiday season
(B)If the Fed maintains constant growth of the money supply, what happens to interest rates as the money demand function moves around?
(C)Given that the money demand function tends to move around, is it better policy to maintain constant growth of the money supply or a constant level of interest rates?

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Definitions:

Cereal Brands

Companies that manufacture and market different types of breakfast cereal.

Product Differentiation

The process of distinguishing a product or service from others in the market to make it more appealing to a specific target market.

Pure Monopoly

A market structure where a single supplier provides a unique product or service, facing no competition due to high barriers to entry.

State Utility Commission

A governmental body responsible for regulating the rates and services of utilities within a specific state.