Question

Question 25 (1 point) In the 14th century, the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold, which was in use as a medium of exchange. How would we predict this increase in gold would do to the price level and value of gold in Cairo? lower the price level, but increase the value of gold in Cairo raise both the price level and the value of gold in Cairo raise the price level, but decrease the value of gold in Cairo lower both the price level and the value of gold in Cairo Question 26 (1 point) When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right? an increase in real GDP a decrease in the price level an increase in the price level a decrease in real GDP

Answer 1

Ans 25)- Since Gold was in use as a medium of exchange i.e. as a commodity currency in the economy.

So, increase in gold means increase in money supply in the economy i.e. monetary expansion, thus the increase in money supply wold lead the price level to rise in the economy.

since there was also increase in the supply of gold, which would lead to a decrease in the value of Gold.

Hence here option 'c' is correct i.e. raise the price level but decrease the value of gold in cairo.

Ans 26)- Money demand can be categorised in 2 parts. one is demand for money for transaction purpose and and the other is demand of money for speculation purpose. i.e.

Money demand = kY(transactional demand)  - hi (speculative demand)

where, i: interest rate ans Y: real GDP

So from the above equation, any increase in Real GDP (i.e. Y) cause money demand to increase, thus there would be rightward shift in money demand.

Hence, here option 'A' is correct. i.e. increase in Real GDP shift money demand right.