This assignment is for Module 5 and covers Chapter 24 from the text. Students should answer all questions. All questions
are of equal value.
Question 1
a) Briefly explain the three functions of money.
b) Provide an original (non-text book) example of money serving each of these functions.
c) Explain why credit cards are/are not money.
Question 2
a) How does a reduction in the interest rate impact the quantity demanded for money? Explain and use a diagram in
your answer.
b) Given a constant supply of money, explain the impact of an increase in the demand for money. Use a diagram in
your answer.
Question 3
a) Explain the impact of reduction in GDP on the short run equilibrium interest rate. Use a diagram in your answer.
b) Explain and illustrate with a money market diagram, how the Bank of Canada would respond if an existing short run
equilibrium in the money market was eliminated by a decrease in the demand for money and the Bank of Canada wanted to
restore the previous equilibrium interest rate.
Question 4
If we assume a constant velocity of money, use the Quantity Theory of Money to identify the impact of money supply growth
in excess of real GDP growth.
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