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Q. What are the main factors determining the aggregate money demand?
Answer: Three major factors: the price level, interest rate and real national income. A increase in the interest rate causes each individual in the economy to reduce her demand for money. If the price level increases, individual firms and households will spend more money than before. When actual national income (GNP) raises the demand for money will rise.
Q. Who are the major participants in the foreign exchange market? Answer: 1. Commercial banks 2. Corporations 3. Nonblank financial institutions 4. Central banks
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Q. Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will h
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