Example of the liquidity demand for money

Reference no: EM13685306

1. Assets can be classified in 3 ways according to its liquidity. But, such assets do not include homes, jewellery, vehicles, etc. Why? (Use three sentences maximum)

2. People often like to visit flea markets to look for unexpected opportunities. Flea markets also typically use cash. Describe why this is an example of the liquidity demand for money.

3. What would happen to the supply of money if a central bank purchased long-term government bonds held by the public?

4. If investors began to think the stock market is becoming less risky, how will this belief affect the demand for money? Would this more probable affect M1 or M2?

5. Presume the interest rate on a two-year bond was higher than the interest rate on a one-year bond. What does the market believe will happen next year to one-year interest rates?

Reference no: EM13685306

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