Question

1. Consider the non-equilibrium situation in the money market: People want to reduce their holdings of monetary asset. In the process toward the equilibrium, answer how variables below will change in the market: Decrease, Increase, No change.

Price of non-monetary asset:

Interest rate:

Real money supply:

Read money demand:

Answer 1

1.A nonmonetary asset is an asset whose value can change over time in response to economic conditions. Examples of nonmonetary assets are buildings, equipment, inventory, and patents. The amount that can be obtained for these assets can vary, since there is no fixed rate at which they convert into cash . Non-monetary assets are those that do not have a value determinable in exact dollar terms. ... Examples include property, plant & equipment, intangible assets. Like all assets, intangible assets are those that are expected to generate economic returns for the company in the future.

2.An interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money loaned. Since banks borrow money from you (in the form of deposits), they also pay you an interest rate on your money.

3.Real money supply is the nominal money supply adjusted for the effects of inflation. Monetary value in real terms is intended to allow money to be used as a fixed purchasing unit

4.The real demand for money is defined as the nominal amount of money demanded divided by the price level. The nominal demand for money generally increases with the level of nominal output (the price level multiplied by real output). The demand for money shifts out when the nominal level of output increases.