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Reading 24: Money, the Price Level, and Inflation - LOS g,

Q1. In a recent economic forum meeting, Jason Federmeyer of the Bank of Detroit, and Lawrence Lobovsky of the Bank of Tulsa, were discussing the demand for money and how it has changed over the years. Federmeyer made the following two statements to Lobovsky:

Statement 1: Financial innovation has significantly affected the demand for money. The increased use of credit cards and debit cards, interest-bearing checking accounts, internet banking and even the large number of ATMs around the world have all helped to increase the demand for money above what it would have been if only the increase in real GDP were at work.

Statement 2: Although the quantity of money demanded is largely determined by interest rates, the supply of money is determined by the central bank and is independent of interest rates.

Are Statement 1 and Statement 2 as made by Federmeyer CORRECT?

        Statement 1                   Statement 2

 

A) Incorrect                         Incorrect

B) Correct                           Correct

C) Incorrect                         Correct

Q2. The demand for money curve represents the relationship between the quantity of money demanded and:

A)  the quantity of money supplied.

B)  short-term interest rates.

C)  the price level.

thanks

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THX

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d

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 cb

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thanks

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nice

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nice

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4

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