Question:

(a) State whether the following statements are TRUE or FALSE. Justify briefly your answer.

(i) Money is the most liquid medium to store value.

(ii) An increase in money in circulation leads to a proportionate increase in the general level of prices.

(iii) There is no relationship between the demand for money and interest rate.

American and European monetary authorities implemented expansionary monetary policies to fight recession in 2008 and 2009.

(i) Use the model of money supply to justify the relevance of an expansionary monetary policy during periods of recession.

(ii) Analyse the transmission mechanism of the above monetary policy to the real economy and discuss its efficiency.