Explain the relationship between interest rates and the demand for money, as described by the Keynesians.
7. Which group of economists believes that the velocity of money is not necessarily stable? Explain their
8. Why is it important for economists to determine whether the velocity of money is constant or whether it is
influenced by changes in the transactions demand for money?
9. Why don’t classical economists or monetarists advocate increasing the money supply in order to raise real GDP?
10. What factors influence the stability of velocity? Why is velocity’s stability a crucial issue for assessing the
effectiveness of monetary policy?
11. Describe what will happen to an economy in which the money supply consists of gold coins when a major
new source of cheap gold is discovered.
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