The Total Demand for Money Is Equal to the Transactions

question 15

Essay

The total demand for money is equal to the transactions demand plus the asset demand for money.(a) Assume that each dollar held for transactions purposes is spent on the average five times per year to buy final goods and services.If nominal GDP is $1,000 billion (or $1 trillion), what is the transactions demand?
(b) The table below shows the asset demand at certain rates of interest.Using your answer to part (a), complete the table to show the total demand for money at various rates of interest. (c) If the money supply is $260 billion, what will be the equilibrium rate of interest?
(d) If the money supply rises, will the equilibrium rate of interest rise or fall?
(e) If GDP rises, will the equilibrium rate of interest rise or fall?

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Definitions:

Commercial Manufacturing

Commercial manufacturing refers to the large-scale production of goods typically utilizing machinery in factories, aimed at supplying a wide market.

Expanded Markets

Markets that have grown in size or scope, allowing for increased business opportunities and consumer choices.

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The fundamental principles or established precedents according to which a state or other organization is governed.

Territory

An area of land under the jurisdiction of a ruler or state, often denoting non-state regions with a degree of autonomy.