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Suppose, the Aggregate Demand for Money-Holding Is L = KY

Question 39

Multiple Choice

Suppose, the aggregate demand for money-holding is L = kY - hi, where Y is the real GDP, k is the real balance fraction, i is the interest rate and h is the extent by which interest rate affects money demand. We can conclude:


A) when the interest-sensitivity of the money demand function increases, there will a parallel rightward shift of the money demand curve.
B) when the real cash balance fraction (k) increases, there will a parallel rightward shift of the money demand curve.
C) when both Y and i increases, there will a parallel rightward shift of the money demand curve.
D) none of the above.

Correct Answer:

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