This question is about the money market and the workings of central bank. a. How a central bank uses the open market operations (OMO) to increase or decrease money supply? b. What kind of relationship exist between an asset’s price and rate of return? Explain why. c. Please write a “real money demand function” and show and explain what are the main determinants of money demand with the signs (- or +) of each factor. d. Is the money demand function that you wrote in part (c) same with “the Cambridge money demand function”? Explain if there is a difference between the two. e. What the quantity theory of money (QTM) says about the relationship between money supply and the price level? Explain

This question is about the money market and the workings of central bank.

  1. a. How a central bank uses the open market operations (OMO) to increase or decrease money supply?
  2. b. What kind of relationship exist between an asset’s price and rate of return? Explain why.
  3. c. Please write a “real money demand function” and show and explain what are the main determinants of money demand with the signs (- or +) of each factor.
  4. d. Is the money demand function that you wrote in part (c) same with “the Cambridge money demand function”? Explain if there is a difference between the two.
  5. e. What the quantity theory of money (QTM) says about the relationship between money supply and the price level? Explain

 

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