c) The money demand function is an important framework in both the monetary and portfolio balance (or asset) approaches

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C The Money Demand Function Is An Important Framework In Both The Monetary And Portfolio Balance Or Asset Approaches 1 (53.61 KiB) Viewed 30 times

c) The money demand function is an important framework in both the monetary and portfolio balance (or asset) approaches to the balance of payments. (i) State the specification of money demand in the monetary approach, including the signs of the explanatory variable coefficients. [No explanations required.] [7] Now suppose that South Africa's GDP increases, ceteris paribus. (ii) Which of the determinants of money demand will this development directly affect and why? [3] Assume that the balances on both the current and financial accounts are initially zero, and the money market is also initially in equilibrium. Under a fixed exchange rate system, in the context of the monetary approach, briefly explain the following given the increase in S.A.'s GDP: (iv) (v) (vi) (vii) (viii) (ix) the nature of disequilibrium arising in the money market and why; the effect on the current account (mention only one channel); the effect on the financial account (mention only one channel); the effect on the overall balance of payments (BoP) before central bank intervention; the nature of central bank intervention in the foreign exchange market; the effects on international reserves, official settlements account and BoP after central bank intervention; the role of expected inflation in money market adjustment. [2] [3] [3] [1] [1] [3] [2]