1) Explain the Keynesian theory of money demand. What motives did Keynes think determined money demand? What are the two reasons why Keynes thought velocity could NOT be treated as a constant?

2)Explain why a temporary negative supply shock poses a dilemma for policymakers.

3) Explain why traditional Monetary Policy tools are ineffective at the zero lower bound. Depict graphically what happens in the AD/AS model if policy authorities do nothing when the zero lower bound is binding.

4) In class we discussed different shocks; for each of the following, describe how monetary policymakers would respond (if at all) to stabilize economic activity.

a. A reduction in autonomous consumption.

b. An increase in government expenditures.

c. An appreciation of the dollar relative to other currencies.

d. An increase in investment spending bro9ught about by an increase in producer confidence.