State whether you agree or disagree with the following statement Explain what ha

Question

State whether you agree or disagree with the following statement Explain what happens to (ii) MS and (iii) interest rates When the real economy expands (Y rises), the demand for money expands. As a result, households hold more cash and the supply of money expands. TO ANSWER (i) and (ii) CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW Select one or more: (i) Agree (i) Disagree (ii) MS increases (ii) MS decreases (ii) MS unchanged (iii) interest rate increases (iii) interest rate decreases (iii) interest rate unchanged

Explanation / Answer

Solution: Agreed, MS increases, interest rate increases

Explanation: When the real economy expands (Y rises), the demand for money expands, and as a result the interest rate will increase. Due to an increase in GDP there will be increase the demand for money because the growing firms will require more money to produce more output and expecting consumption to be high.

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