Suppose an economic boom occurs in your hometown because the price of its main manufacturing product has risen in the national market, and the incomes of many people have gone up. Other things being equal, what is the boom's likely effect on money demand in your hometown?

Question

Quizplus · Accepted Answer

An economic boom leads to an increase in incomes and production, which in turn increases the number of transactions in the economy. This results in a higher demand for money to engage in these transactions. Therefore, the transactions demand for money will rise, causing an increase in the quantity of money demanded at any given interest-rate level.

Suppose an Economic Boom Occurs in Your Hometown Because the Price