1.Explain how each of the following developments would affect the supply of money, the demand for money and the interest rate. Iiiustrate your answers with diagrams.

a.BNM's securities traders buy securities in open-market operations.

b.An increase in credit-card availability reduces the cash people hold.

c.BNM reduces banks reserve requirements.

d.Households decide to hold more money to use for Holiday shopping.

e.A wave of optimism boosts business investment and expands aggregate demand.

10. In which of the following circumstances is expansionary fiscal policymore likely to lead to a short-run increase in investment? Explain.

a. When the investment accelerator is large or when it is small?

b. When the interest sensitivity of investment is large or when it is small?

11. For various reasons,fiscal policy changes automatically when output and employment fluctuate.

a. Explain why tax revenue changes when the economy goes into arecession.

b. Explain why government spending changes when the economy goes into a recession.

c.If the government were to operate under a strict balanced - budget rule,what would it have to do in a recession? Would that make the recession more or less severe?