(a) Discuss how the below event affects money market: People think interest rate will rise (i) (ii) People think exchang

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A Discuss How The Below Event Affects Money Market People Think Interest Rate Will Rise I Ii People Think Exchang 1 (56.58 KiB) Viewed 29 times

(a) Discuss how the below event affects money market: People think interest rate will rise (i) (ii) People think exchange rate will rise People think inflation will rise (iii) (iv) People think the economy is going to enter recession (v) People think the economy is going to grow faster (b) If the interest was targeted at a level that is below the current market equilibrium, (i) how it affects the aggregate demand, real income and balance of payment? Explain. (5 marks) (ii) what tools can the central bank use to reverse the change in the interest rate? (5 marks) (c) The following table provides data on types of money in country E where the currency code is E. Currency in circulation Short Term Repurchase Agreements Small savings and Time Deposits Large time deposit Demand deposits (5 marks) E millions 1,900 4,213 7,451 7,652 5,423 Using the table above, work out the figure for the following: (i) M1 (ii) M2 (iii) M3 (5 marks) (d) Draw the diagrams of a money market and an AD-SRAS, explain how expansionary monetary policy affects real GDP in an economy. (5 marks)