State whether you agree or disagree with the following statement and explain why

Question

State whether you agree or disagree with the following statement and explain why:

a. 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.

b) Inflation a rise in the price level causes demand for money to decline. Because inflation causes money to be worth less, households desire to hold less of it.

c. If the Fed buys bonds in the open market and at the same time we experience a recession, interest rates will no doubt rise.

Explanation / Answer

a. agree - because if the economy is on the rise so is your wallet. a strong economy means more/better paying jobs cheaper housing etc.. b. disagree - inflation makes the demand for money to rise as everything is more expensive and the more you can get the better. Also, people are more likely to try and save whatever money they can in hopes that inflation goes down. c. disagree - if there is a recession whether you are the Feds or regular people I think the interest rates will drop as fewer people will have money to save

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