Intermediate Macroeconomics



(a). Money is a universal medium of exchange. Explain. In the process, also differentiate between direct and indirect exchange and explain why the process of indirect exchange is welfare-enhancing and more productive. (3)

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(b). Provide an explanation of the concept of the velocity of circulation of money. Also provide an explanation of the concept of the demand to hold money in cash balances. Explain the relationship between these two ways of analyzing the demand for money. (4)

(c). Write down the Quantity Equation and provide an explanation of all the variables included in it. (4)

(d). Use the Quantity Equation to explain the Quantity Theory of Money. Also explain why this theory implies that money is neutral to real GDP and the level of employment in the economy.

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