Get premium membership and access questions with answers, video lessons as well as revision papers.
Increase in money demand supply leads to decrease in interest rate. Expansion of the money supply will lead to the interest rate falling. This will increase investment. Depending on the interest elasticity of the investment function and the value of the investment multiplier, therefore, expansionary monetary policy can help reduce unemployment and expand output in the economy. At some point an increase in money supply will be ineffective in bringing a fall in the interest rate. This is because the liquidity trap exists and therefore any increase in income beyond this point goes to satisfy the demand to idle speculation balances
Dana05 answered the question on August 14, 2019 at 07:26
- Describe the classical theory of money supply (Solved)
Describe the classical theory of money supply
Date posted: August 14, 2019. Answers (1)
- What is the velocity of money in an economy?(Solved)
What is the velocity of money in an economy?
Date posted: August 14, 2019. Answers (1)
- Describe the modern quantity theory of money (Solved)
Describe the modern quantity theory of money
Date posted: August 14, 2019. Answers (1)
- Explain the factors that influence the modern quantity theory of money
(Solved)
Explain the factors that influence the modern quantity theory of money
Date posted: August 14, 2019. Answers (1)
- Describe how the liquidity trap occurs in an economy (Solved)
Describe how the liquidity trap occurs in an economy
Date posted: August 14, 2019. Answers (1)
- Describe the speculations motive for holding money according to Keynes (Solved)
Describe the speculations motive for holding money according to Keynes
Date posted: August 14, 2019. Answers (1)
- Describe the precautionary motive for holding money according to Keynes (Solved)
Describe the precautionary motive for holding money according to Keynes
Date posted: August 14, 2019. Answers (1)
- Describe the transactions motive for holding money according to Keynes (Solved)
Describe the transactions motive for holding money according to Keynes
Date posted: August 14, 2019. Answers (1)
- Briefly explain the factors that affect the amount of money held for the transactions motive (Solved)
Briefly explain the factors that affect the amount of money held for the transactions motive
Date posted: August 14, 2019. Answers (1)
- According to Keynes, how is the transactions demand for money affect by the interest rate (Solved)
According to Keynes, how is the transactions demand for money affect by the interest rate
Date posted: August 14, 2019. Answers (1)
- Discuss the process of money creation by commercial banks (Solved)
Discuss the process of money creation by commercial banks
Date posted: August 14, 2019. Answers (1)
- Highlight the properties of money as a medium of exchange (Solved)
Highlight the properties of money as a medium of exchange
Date posted: August 14, 2019. Answers (1)
- Describe how paradox of thrift occurs (Solved)
Describe how paradox of thrift occurs
Date posted: August 14, 2019. Answers (1)
- How is a deflationary gap removed (Solved)
How is a deflationary gap removed
Date posted: August 14, 2019. Answers (1)
- Describe the occurrence of an inflationary gap in the economy (Solved)
Describe the occurrence of an inflationary gap in the economy
Date posted: August 14, 2019. Answers (1)
- What are the challenges faced by clearing and forwarding firms?(Solved)
What are the challenges faced by clearing and forwarding firms?
Date posted: July 29, 2019. Answers (1)
- Differentiate between an inflationary gap and the deflationary gap (Solved)
Differentiate between an inflationary gap and the deflationary gap
Date posted: July 18, 2019. Answers (1)
- Describe the paradox of thrift (Solved)
Describe the paradox of thrift
Date posted: July 18, 2019. Answers (1)
- Derive the multiplier with foreign exchange (Solved)
Derive the multiplier with foreign exchange
Date posted: July 18, 2019. Answers (1)
- Derive the multiplier when tax depends on income (Solved)
Derive the multiplier when tax depends on income
Date posted: July 18, 2019. Answers (1)