Answer the Questions Below

Essay

Answer the questions below:
(A)Explain how each of the following would affect the money demand function:
1.An increase in the cost of living
2.Financial innovations that make it possible to write checks against saving and money market accounts
3.Financial innovations that make it possible to electronically pay bills out of saving and money market accounts
4.The December holiday season
(B)If the Fed maintains constant growth of the money supply, what happens to interest rates as the money demand function moves around?
(C)Given that the money demand function tends to move around, is it better policy to maintain constant growth of the money supply or a constant level of interest rates?