Question 1

In which situation do people want to hold more money?

Accepted Answer

A)  when the price level and the interest rate increases 
B)  when the price level and the interest rate decreases 
C)  when the price level increases and the interest rate decreases 
D)  when the price level decreases and the interest rate increases 
A)  when the price level and the interest rate increases 
B)  when the price level and the interest rate decreases 
C)  when the price level increases and the interest rate decreases 
D)  when the price level decreases and the interest rate increases

Question 2

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

Accepted Answer

A)  In the short run, the price level and real GDP would rise, but in the long run they would both be unaffected. 
B)  In the short run, the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected. 
C)  In the short run, the price level and real GDP would fall, but in the long run they would both be unaffected. 
D)  In the short run, the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected. 
A)  In the short run, the price level and real GDP would rise, but in the long run they would both be unaffected. 
B)  In the short run, the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected. 
C)  In the short run, the price level and real GDP would fall, but in the long run they would both be unaffected. 
D)  In the short run, the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected.

Question 3

When does the opportunity cost of holding money decrease or increase, and how does people's desire to hold money change?

Accepted Answer

A)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold more money. 
B)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold less money. 
C)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold more money. 
D)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold less money. 
A)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold more money. 
B)  The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold less money. 
C)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold more money. 
D)  The opportunity cost of holding money increases when the interest rate increases, so people desire to hold less money.

Question 4

According to liquidity-preference theory, what action taken by the Bank of Canada would shift the money-supply curve?

Accepted Answer

A)  if the Bank of Canada engaged in arbitrage 
B)  if the Bank of Canada changed the inflation rate 
C)  if the Bank of Canada changed the exchange rate 
D)  if the Bank of Canada engaged in open-market transactions 
A)  if the Bank of Canada engaged in arbitrage 
B)  if the Bank of Canada changed the inflation rate 
C)  if the Bank of Canada changed the exchange rate 
D)  if the Bank of Canada engaged in open-market transactions

Question 5

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

Accepted Answer

A)  wealth effect 
B)  interest-rate effect 
C)  exchange-rate effect 
D)  real-wage effect 
A)  wealth effect 
B)  interest-rate effect 
C)  exchange-rate effect 
D)  real-wage effect

Question 6

According to liquidity-preference theory, in which circumstance would the money-supply curve shift left?

Accepted Answer

A)  if government spending decreased 
B)  only if the Bank of Canada chose to decrease the money supply 
C)  if the interest rate increased 
D)  if the price level increased 
A)  if government spending decreased 
B)  only if the Bank of Canada chose to decrease the money supply 
C)  if the interest rate increased 
D)  if the price level increased

Question 7

Which statement best describes the relationship among the three effects that influence the slope of the aggregate demand curve?

Accepted Answer

A)  The real wealth effect always precedes the other two. 
B)  If the real exchange is large then the other two effects will be minimal. 
C)  All three effects occur simultaneously. 
D)  If the real interest occurs first then the other two effects will be relatively large. 
A)  The real wealth effect always precedes the other two. 
B)  If the real exchange is large then the other two effects will be minimal. 
C)  All three effects occur simultaneously. 
D)  If the real interest occurs first then the other two effects will be relatively large.

Question 8

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the bank rate 
B)  a decrease in the price level 
C)  a decrease in the money supply 
D)  a decrease in interest rates 
A)  an increase in the bank rate 
B)  a decrease in the price level 
C)  a decrease in the money supply 
D)  a decrease in interest rates

Question 9

According to liquidity-preference theory, how does an increase in the price level affect the interest rate and output demanded, respectively?

Accepted Answer

A)  The interest rate increases, and output demanded increases. 
B)  The interest rate increases, and output demanded decreases. 
C)  The interest rate decreases, and output demanded increases. 
D)  The interest rate decreases, and output demanded decreases. 
A)  The interest rate increases, and output demanded increases. 
B)  The interest rate increases, and output demanded decreases. 
C)  The interest rate decreases, and output demanded increases. 
D)  The interest rate decreases, and output demanded decreases.

Question 10

If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

Accepted Answer

A)  The money supply increases, and aggregate demand shifts right. 
B)  The money supply increases, and aggregate demand shifts left. 
C)  The money supply decreases, and aggregate demand shifts right. 
D)  The money supply decreases, and aggregate demand shifts left. 
A)  The money supply increases, and aggregate demand shifts right. 
B)  The money supply increases, and aggregate demand shifts left. 
C)  The money supply decreases, and aggregate demand shifts right. 
D)  The money supply decreases, and aggregate demand shifts left.

Question 11

Figure 15-1  
-Refer to Figure 15-1. What will happen if the current interest rate is 2 percent?

Accepted Answer

A)  People will buy more bonds, which drives interest rates down. 
B)  People will sell more bonds, which drives interest rates up. 
C)  People will buy more bonds, which drives interest rates up. 
D)  People will sell more bonds, which drives the interest rates down. 
A)  People will buy more bonds, which drives interest rates down. 
B)  People will sell more bonds, which drives interest rates up. 
C)  People will buy more bonds, which drives interest rates up. 
D)  People will sell more bonds, which drives the interest rates down.

Question 12

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

Accepted Answer

A)  the interest rate in both theories 
B)  the price level in both theories 
C)  the interest rate in the liquidity-preference theory and the price level in the classical theory 
D)  the price level in the liquidity-preference theory and the interest rate in the classical theory 
A)  the interest rate in both theories 
B)  the price level in both theories 
C)  the interest rate in the liquidity-preference theory and the price level in the classical theory 
D)  the price level in the liquidity-preference theory and the interest rate in the classical theory

Question 13

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Accepted Answer

A) True 
 B)False

Question 14

Which statement is NOT a reason the aggregate-demand curve slopes downward?

Accepted Answer

A)  As the price level increases, real wages decline. 
B)  As the price level increases, real wealth declines. 
C)  As the price level increases, the interest rate increases. 
D)  As the price level increases, the exchange rate increases. 
A)  As the price level increases, real wages decline. 
B)  As the price level increases, real wealth declines. 
C)  As the price level increases, the interest rate increases. 
D)  As the price level increases, the exchange rate increases.

Question 15

According to which theory do changes in the interest rate bring the money market into equilibrium?

Accepted Answer

A)  purchasing-power parity theory 
B)  the quantity theory of money 
C)  liquidity-preference theory 
D)  the real business cycles theory 
A)  purchasing-power parity theory 
B)  the quantity theory of money 
C)  liquidity-preference theory 
D)  the real business cycles theory

Question 16

Assume the money market is initially in equilibrium. If the price level increases, according to liquidity-preference theory, what is in excess and for how long?

Accepted Answer

A)  The supply of money is in excess until the interest rate increases. 
B)  The supply of money is in excess until the interest rate decreases. 
C)  The demand for money is in excess until the interest rate increases. 
D)  The demand for money is in excess until the interest rate decreases. 
A)  The supply of money is in excess until the interest rate increases. 
B)  The supply of money is in excess until the interest rate decreases. 
C)  The demand for money is in excess until the interest rate increases. 
D)  The demand for money is in excess until the interest rate decreases.

Question 17

When the interest rate decreases, what happens to the opportunity cost of holding money and the quantity of money demanded?

Accepted Answer

A)  The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases, so the quantity of money demanded decreases. 
A)  The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases, so the quantity of money demanded decreases.

Question 18

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int

Question 19

Assume the money market is initially in equilibrium. If the price level decreases, according to liquidity-preference theory, what is in excess and for how long?

Accepted Answer

A)  The supply of money is in excess until the interest rate increases. 
B)  The supply of money is in excess until the interest rate decreases. 
C)  The demand for money is in excess until the interest rate increases. 
D)  The demand for money is in excess until the interest rate decreases. 
A)  The supply of money is in excess until the interest rate increases. 
B)  The supply of money is in excess until the interest rate decreases. 
C)  The demand for money is in excess until the interest rate increases. 
D)  The demand for money is in excess until the interest rate decreases.

Question 20

Let us derive an aggregate-demand curve starting from some money demand and money supply equations. Assume the money-demand curve is MD=150 - 15r + Y, the price level depends on r according to the equation P = 100 - 10r, and the money supply is MS = 100. Find a relationship between the price level P and output Y and show that the relation that you have found is an aggregate demand function.

Accepted Answer

From the money market equilibrium condit

In which situation do people want to hold more money?

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

When does the opportunity cost of holding money decrease or increase, and how does people's desire to hold money change?

According to liquidity-preference theory, what action taken by the Bank of Canada would shift the money-supply curve?

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

According to liquidity-preference theory, in which circumstance would the money-supply curve shift left?

Which statement best describes the relationship among the three effects that influence the slope of the aggregate demand curve?

Which of the following shifts aggregate demand to the right?

According to liquidity-preference theory, how does an increase in the price level affect the interest rate and output demanded, respectively?

If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

Figure 15-1 -Refer to Figure 15-1. What will happen if the current interest rate is 2 percent?

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Which statement is NOT a reason the aggregate-demand curve slopes downward?

According to which theory do changes in the interest rate bring the money market into equilibrium?

Assume the money market is initially in equilibrium. If the price level increases, according to liquidity-preference theory, what is in excess and for how long?

When the interest rate decreases, what happens to the opportunity cost of holding money and the quantity of money demanded?

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Assume the money market is initially in equilibrium. If the price level decreases, according to liquidity-preference theory, what is in excess and for how long?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Exam 15: The Influence of Monetary Policy on Aggregate Demand

In which situation do people want to hold more money?

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

When does the opportunity cost of holding money decrease or increase, and how does people's desire to hold money change?

According to liquidity-preference theory, what action taken by the Bank of Canada would shift the money-supply curve?

Which reason for the downward slope of the aggregate demand curve would likely be more important for a small closed economy?

According to liquidity-preference theory, in which circumstance would the money-supply curve shift left?

Which statement best describes the relationship among the three effects that influence the slope of the aggregate demand curve?

Which of the following shifts aggregate demand to the right?

According to liquidity-preference theory, how does an increase in the price level affect the interest rate and output demanded, respectively?

If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

Figure 15-1 -Refer to Figure 15-1. What will happen if the current interest rate is 2 percent?

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

An increase in the price level shifts the money-demand curve to the left, making interest rates rise.

Which statement is NOT a reason the aggregate-demand curve slopes downward?

According to which theory do changes in the interest rate bring the money market into equilibrium?

Assume the money market is initially in equilibrium. If the price level increases, according to liquidity-preference theory, what is in excess and for how long?

When the interest rate decreases, what happens to the opportunity cost of holding money and the quantity of money demanded?

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Assume the money market is initially in equilibrium. If the price level decreases, according to liquidity-preference theory, what is in excess and for how long?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters