Question 1

Because the liquidity-preference framework focuses on the

Accepted Answer

A)  short run,it assumes the price level adjusts to bring the money market to equilibrium.
B)  short run,it assumes the interest rate adjusts to bring the money market to equilibrium.
C)  long run,it assumes the price level adjusts to bring the money market to equilibrium.
D)  long run,it assumes the interest rate adjusts to bring the money market to equilibrium.E) All of the above
F) B) and C)

Question 2

On the graph that depicts the theory of liquidity preference,

Accepted Answer

A)  the demand-for-money curve is vertical.
B)  the supply-of-money curve is vertical.
C)  the interest rate is measured along the horizontal axis.
D)  the price level is measured along the vertical axis.E) B) and C)
F) A) and C)

Question 3

Liquidity preference theory is most relevant to the

Accepted Answer

A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) A) and C)
F) A) and B)

Question 4

According to the theory of liquidity preference,if output decreases

Accepted Answer

A)  people want to hold more money.This response is shown as a movement along the money demand curve.
B)  people want to hold more money.This response is shown as a shift of the money demand curve.
C)  people want to hold less money.This response is shown as a movement along the money demand curve.
D)  people want to hold less money.This response is shown as a shift of the money demand curve.E) All of the above
F) B) and D)

Question 5

Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
. 
-Refer to Figure 34-2.If the money-supply curve MS on the left-hand graph were to shift to the left,this would

Accepted Answer

A)  represent an action taken by the Federal Reserve.
B)  shift the AD curve to the left.
C)  create,until the interest rate adjusted,an excess demand for money at the interest rate that equilibrated the money market before the shift.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 6

According to the theory of liquidity preference,an increase in the price level causes the

Accepted Answer

A)  interest rate and investment to rise.
B)  interest rate and investment to fall.
C)  interest rate to rise and investment to fall.
D)  interest rate to fall and investment to rise.E) C) and D)
F) A) and C)

Question 7

If the Fed conducts open-market sales,which of the following quantities increase(s) ?

Accepted Answer

A)  interest rates,prices,and investment spending
B)  interest rates and prices,but not investment spending
C)  interest rates and investment,but not prices
D)  interest rates,but not investment or pricesE) All of the above
F) C) and D)

Question 8

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Accepted Answer

A)  only the nominal interest rate
B)  both the nominal interest rate and the real interest rate
C)  only the interest rate on long-term bonds
D)  only the interest rate on short-term government bondsE) B) and C)
F) C) and D)

Question 9

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)  liquidity preference.
B)  liquidity trap.
C)  open-market trap.
D)  interest-rate contraction.E) B) and C)
F) A) and B)

Question 10

If the stock market booms,then

Accepted Answer

A)  aggregate demand increases,which the Fed could offset by increasing the money supply.
B)  aggregate supply increases,which the Fed could offset by increasing the money supply.
C)  aggregate demand increases,which the Fed could offset by decreasing the money supply.
D)  aggregate supply increases,which the Fed could offset by decreasing the money supply.E) B) and C)
F) All of the above

Question 11

If the Fed conducts open-market sales,the money supply

Accepted Answer

A)  increases and aggregate demand shifts right.
B)  increases and aggregate demand shifts left.
C)  decreases and aggregate demand shifts right.
D)  decreases and aggregate demand shifts left.E) None of the above
F) A) and B)

Question 12

If the interest rate is below the Fed's target,the Fed should

Accepted Answer

A)  buy bonds to increase bank reserves.
B)  buy bonds to decrease bank reserves.
C)  sell bonds to increase bank reserves.
D)  sell bonds to decrease bank reserves.E) A) and C)
F) C) and D)

Question 13

Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
. 1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct? A) When r = r2,nominal output is higher than it is when r = r1. B) When r = r2,real output is higher than it is when r = r1. C) When r = r2,the expected rate of inflation is higher than it is when r = r1. D) If the velocity of money is 4 when r = r2,then the quantity of money is $3,000." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.Assume the money market is always in equilibrium,and suppose r1 = 0.08;r2 = 0.12;Y1 = 13,000;Y2 = 10,000;P1 = 1.0;and P2 = 1.2.Which of the following statements is correct?

Accepted Answer

A)  When r = r2,nominal output is higher than it is when r = r1.
B)  When r = r2,real output is higher than it is when r = r1.
C)  When r = r2,the expected rate of inflation is higher than it is when r = r1.
D)  If the velocity of money is 4 when r = r2,then the quantity of money is $3,000.E) B) and C)
F) C) and D)

Question 14

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)  firms may believe the relative price of their output has risen.
B)  real wealth declines.
C)  the interest rate increases.
D)  the exchange rate increases.E) A) and D)
F) B) and C)

Question 15

The Federal Funds rate is the interest rate

Accepted Answer

A)  banks charge each other for short-term loans.
B)  the Fed charges depository institutions for short-term loans.
C)  the Fed pays on deposits.
D)  interest rate on 3 month Treasury bills.E) None of the above
F) C) and D)

Question 16

According to liquidity preference theory,the money-supply curve is

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  vertical.
D)  horizontal.E) C) and D)
F) None of the above

Question 17

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A)  r = 0.03,P = 1.2
B)  r = 0.03,P = 1.3
C)  r = 0.04,P = 1.2
D)  r = 0.05,P = 0.9E) A) and C)
F) B) and C)

Question 18

Changes in the interest rate

Accepted Answer

A)  shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy.
B)  shift aggregate demand if they are caused by changes in the price level,but not if they are caused by changes in fiscal or monetary policy.
C)  shift aggregate demand if they are caused by fiscal or monetary policy,but not if they are caused by changes in the price level.
D)  do not shift aggregate demand.E) B) and C)
F) A) and B)

Question 19

Other things the same,as the price level rises,

Accepted Answer

A)  the interest rate rises causing aggregate demand to shift.
B)  the interest rate rises causing a movement along a given aggregate-demand curve.
C)  the interest rate falls causing aggregate demand to shift.
D)  the interest rate falls causing a movement along a given aggregate-demand curve.E) A) and D)
F) B) and D)

Question 20

Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
. 1, A) the price level is held fixed at P1. B) the interest rate is held fixed at r1. C) the money supply is changing so as to keep the money market in equilibrium. D) the expected inflation rate is changing so as to keep the real interest rate constant." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-2.As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)  the price level is held fixed at P1.
B)  the interest rate is held fixed at r1.
C)  the money supply is changing so as to keep the money market in equilibrium.
D)  the expected inflation rate is changing so as to keep the real interest rate constant.E) A) and B)
F) B) and D)

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Monetary Policy Influences Aggregate Demand

Correct Answer
verified

Changes in the interest rate

Correct Answer
verified

According to the theory of liquidity preference,if output decreases

Correct Answer
verified

Correct Answer
verified

If the Fed conducts open-market sales,which of the following quantities increase(s) ?

Correct Answer
verified

In which of the following cases would the quantity of money demanded be largest?

Correct Answer
verified

Because the liquidity-preference framework focuses on the

Correct Answer
verified

If the Fed conducts open-market sales,the money supply

Correct Answer
verified

Correct Answer
verified

Liquidity preference theory is most relevant to the

Correct Answer
verified

On the graph that depicts the theory of liquidity preference,

Correct Answer
verified

According to liquidity preference theory,the money-supply curve is

Correct Answer
verified

According to the theory of liquidity preference,an increase in the price level causes the

Correct Answer
verified

Other things the same,as the price level rises,

Correct Answer
verified

If the interest rate is below the Fed's target,the Fed should

Correct Answer
verified

If the stock market booms,then

Correct Answer
verified

The Federal Funds rate is the interest rate

Correct Answer
verified

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct Answer
verified

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Correct Answer
verified

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct Answer
verified

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Monetary Policy Influences Aggregate Demand

Correct AnswerverifiedShow Answer

Changes in the interest rate

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,if output decreases

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales,which of the following quantities increase(s) ?

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be largest?

Correct AnswerverifiedShow Answer

Because the liquidity-preference framework focuses on the

Correct AnswerverifiedShow Answer

If the Fed conducts open-market sales,the money supply

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

On the graph that depicts the theory of liquidity preference,

Correct AnswerverifiedShow Answer

According to liquidity preference theory,the money-supply curve is

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,an increase in the price level causes the

Correct AnswerverifiedShow Answer

Other things the same,as the price level rises,

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target,the Fed should

Correct AnswerverifiedShow Answer

If the stock market booms,then

Correct AnswerverifiedShow Answer

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

Correct AnswerverifiedShow Answer

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct AnswerverifiedShow Answer

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