Chapter 20: Q 2. (page 546)
If velocity and aggregate output are reasonably constant (as the classical economists believed), what will happen to the price level when the money supply increases from trillion to trillion?
The price level will rise fourfold in proportion.
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If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain your answer.
Both the portfolio choice and Keynes’s theories of the demand for money suggest that as the relative expected return on money falls, demand for it will fall. Why does the portfolio choice approach predict that money demand is affected by changes in interest rates? Why did Keynes think that money demand is affected by changes in interest rates?
Identify three factors that can shift the aggregate demand curve to the right and three different factors that can shift the aggregate demand curve to the left.
Why would a central bank be concerned about persistent, long-term budget deficits?
John Maynard Keynes is among the most well-known economic theorists. Go to http://en.wikipedia.org/wiki/ John_Maynard_Keynes and write a one-page summary of his life and contributions.
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