Economics bank

Monetary policy

Markets

Money

Europe

Money

Worksheet 2 - Money - who's buying and who's selling?

The purpose of this worksheet is to look at the demand and supply of money. It looks at what determines each of these and therefore what determines equilibrium in the money markets.

1. What do Keynesians see as the three main motives for holding money?

1. ___________________________________
2. ___________________________________
3. ___________________________________

(3 Marks)

2. Illustrate the demand curve that each of these motives creates and the total demand for money curve on the axes below:

(3 Marks)

3. The interest elasticity of demand for money measures how sensitive the demand for money is to changes in the rate of interest. Rank the three Keynesian motives for holding money in terms of their interest elasticity, starting with the most elastic, and write a short justification of your answer.

a)

b)

c)

(9 Marks)

4. What are the main measures of the money supply used in the UK?

(2 Marks)

5. What is included in each of these?

(10 Marks)

6. Why do we need different measures of the money supply?

(5 Marks)

7. The interaction between money supply and money demand determines equilibrium interest rates in the money markets. Show on the axes below what impact each event, in isolation, is likely to have on the market.

1. People become more cautious and start holding more cash in their accounts
   
2. Higher levels of spending at Christmas
   
3. Substantial sales of gilt-edged securities
   
4. Increased printing of money to fund higher government expenditure
   

(8 Marks)

Total Marks = 40