What are the three motives for the demand for money in the Theory of Liquidity Preference? List them and give a brief description of each. Now, combine the three motives into a single equation for the demand for money, using the linear equation we focused on in this class. State the equation and explain in words each of the components of the equation. Lastly, is this equation “stable”, meaning in this context that the money function, once drawn, seldom changes? If so, is monetary policy to keep interest rates near a chosen target easy or hard. If not, if money demand is unstable, what does that mean for the ability of the Fed to stabilize interest rates near a chosen target?

The Theory of Liquidity Preference, developed by John Maynard Keynes, explains how the demand for…

Answered: What are the three motives for the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What are the three motives for the demand for money in the Theory of Liquidity Preference? List them and give a brief description of each. Now, combine the three motives into a single equation for the demand for money, using the linear equation we focused on in this class. State the equation and explain in words each of the components of the equation. Lastly, is this equation “stable”, meaning in this context that the money function, once drawn, seldom changes? If so, is monetary policy to keep interest rates near a chosen target easy or hard. If not, if money demand is unstable, what does that mean for the ability of the Fed to stabilize interest rates near a chosen target?

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