ECO 211 WCC FINAL EXAM STUDY GUIDE, Questions and answers, rated A+

ECO 211 WCC FINAL EXAM STUDY GUIDE, Questions and answers, rated A+ Why do we assume that the money supply curve is vertical? - -Because interest rates don't affect it How do changes in the money supply affect the money supply curve? - -Move it right or left--- Money supply curve is vertical (interest rates do not affect it) Explain the difference between the transactions and asset demand for money. Link them to the appropriate measure of the money supply - -The transaction demand for money stems from its function as a medium of exchange We need to have money to make our day-to-day purchases. • That demand doesn't really depend on the interest rate. Therefore the transactions demand is vertical. • Anytime the value of the goods and services produced changes our demand for money changes. Changes in NGDP shift the transactions demand curve. The asset demand for money stems from its function as a store of value. Money is an asset like stocks and bonds. Strength: It rarely drops in value precipitously. Weakness: It doesn't earn any interest. • The asset demand does depend on the interest rate. The interest rate is the opportunity cost of holding your wealth as money. The asset demand curve has a negative slope. What is transactions demand and what factors shift it - -* $$ as a medium of exchange *value of goods and services can shift it (AKA Nominal GDP) *not really volatile What is the asset demand curve and how do interest rates affect the transactions demand for money - -*Money serving as a store of value * interest rate can shift it *volatile how do contractionary and expansionary policies affect the money market - -Contractionary-- decreases supply in money market (higher interest rates) Expansionary---- Increases supply in money market (lower interest rates) What are the limitations on