Question 1

Which statement describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded.

Question 2

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, what will happen to the interest rate and the quantity of money demanded?

Accepted Answer

A)  The interest rate will increase, and the quantity of money demanded will decrease. 
B)  The interest rate will increase, and the quantity of money demanded will increase. 
C)  The interest rate will decrease, and the quantity of money demanded will decrease. 
D)  The interest rate will decrease, and the quantity of money demanded will increase. 
A)  The interest rate will increase, and the quantity of money demanded will decrease. 
B)  The interest rate will increase, and the quantity of money demanded will increase. 
C)  The interest rate will decrease, and the quantity of money demanded will decrease. 
D)  The interest rate will decrease, and the quantity of money demanded will increase.

Question 3

Which of the following is an effect of an increase in the interest rate?

Accepted Answer

A)  It induces firms to invest more. 
B)  It induces households to increase consumption. 
C)  It shifts money demand to the right. 
D)  It leads to the appreciation of the exchange rate. 
A)  It induces firms to invest more. 
B)  It induces households to increase consumption. 
C)  It shifts money demand to the right. 
D)  It leads to the appreciation of the exchange rate.

Question 4

Which of Keynes's theories does liquidity preference refer to?

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates 
B)  the effects of changes in money demand and supply on exchange rates 
C)  the effects of changes in money demand and supply on expenditure 
D)  the effects of changes in money demand and supply on real wealth 
A)  the effects of changes in money demand and supply on interest rates 
B)  the effects of changes in money demand and supply on exchange rates 
C)  the effects of changes in money demand and supply on expenditure 
D)  the effects of changes in money demand and supply on real wealth

Question 5

If inflation is zero, then the nominal and real interest rates are the same.

Accepted Answer

A) True 
 B)False

Question 6

How does an increase in the interest rate affect the demand for goods and services?

Accepted Answer

A)  It increases the cost of borrowing and people consume more. 
B)  It decreases the cost of borrowing and people consume more. 
C)  It increases the cost of borrowing and people consume less. 
D)  It decreases the cost of borrowing and people consume less. 
A)  It increases the cost of borrowing and people consume more. 
B)  It decreases the cost of borrowing and people consume more. 
C)  It increases the cost of borrowing and people consume less. 
D)  It decreases the cost of borrowing and people consume less.

Question 7

Which of the following shifts money demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 8

Which of the following shifts money demand to the right?

Accepted Answer

A)  an increase in the price level and the interest rate 
B)  an increase in the price level and a decrease in the interest rate 
C)  a decrease in the interest rate but not a change in the price level 
D)  an increase in the price level but not a change in the interest rate 
A)  an increase in the price level and the interest rate 
B)  an increase in the price level and a decrease in the interest rate 
C)  a decrease in the interest rate but not a change in the price level 
D)  an increase in the price level but not a change in the interest rate

Question 9

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Accepted Answer

A)  It increases interest rates and increases aggregate demand. 
B)  It increases interest rates and decreases aggregate demand. 
C)  It decreases interest rates and decreases aggregate demand. 
D)  It decreases interest rates and increases aggregate demand. 
A)  It increases interest rates and increases aggregate demand. 
B)  It increases interest rates and decreases aggregate demand. 
C)  It decreases interest rates and decreases aggregate demand. 
D)  It decreases interest rates and increases aggregate demand.

Question 10

Which of the following is the most liquid asset?

Accepted Answer

A)  cash 
B)  Canada savings bonds 
C)  automobiles 
D)  gold 
A)  cash 
B)  Canada savings bonds 
C)  automobiles 
D)  gold

Which statement describes the interest-rate effect?

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, what will happen to the interest rate and the quantity of money demanded?

Which of the following is an effect of an increase in the interest rate?

Which of Keynes's theories does liquidity preference refer to?

If inflation is zero, then the nominal and real interest rates are the same.

How does an increase in the interest rate affect the demand for goods and services?

Which of the following shifts money demand to the right?

Which of the following shifts money demand to the right?

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Which of the following is the most liquid asset?

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

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Exam 15: The Influence of Monetary Policy on Aggregate Demand

Which statement describes the interest-rate effect?

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, what will happen to the interest rate and the quantity of money demanded?

Which of the following is an effect of an increase in the interest rate?

Which of Keynes's theories does liquidity preference refer to?

If inflation is zero, then the nominal and real interest rates are the same.

How does an increase in the interest rate affect the demand for goods and services?

Which of the following shifts money demand to the right?

Which of the following shifts money demand to the right?

How does a monetary injection by the Bank of Canada affect interest rates and aggregate demand?

Which of the following is the most liquid asset?

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