Question 1

Which of the following explains why the demand for money depends upon the interest rate? &#160;&#10;A)&#160;because money is an interest-earning asset&#160;&#10;B)&#160;because money is NOT an interest-earning asset&#160;&#10;C)&#160;because the alternatives to holding money are NOT interest-earning assets&#160;&#10;D)&#160;because the alternatives to holding money earn more interest than money does

Accepted Answer

&#160;because the alternatives to holding money earn more interest than money does

Question 2

When does the opportunity cost of holding money increase? &#160;&#10;A)&#160;when the interest rate rises&#160;&#10;B)&#160;when the interest rate falls&#160;&#10;C)&#160;when nominal GDP rises&#160;&#10;D)&#160;when nominal GDP falls

Accepted Answer

The opportunity cost of holding money increases when the interest rate rises because the potential earnings from investing that money at the higher interest rate are forgone.

Question 3

Suppose the interest rate increases.How are opportunity cost of holding money and quantity of money demanded affected? &#160;&#10;A)&#160;The opportunity cost of holding money increases, therefore the quantity of money demanded increases.&#160;&#10;B)&#160;The opportunity cost of holding money increases, therefore the quantity of money demanded decreases.&#160;&#10;C)&#160;The opportunity cost of holding money decreases, therefore the quantity of money demanded increases.&#160;&#10;D)&#160;The opportunity cost of holding money decreases, therefore the quantity of money demanded decreases.

Accepted Answer

When the interest rate increases, the opportunity cost of holding money increases because the return on holding money is lower compared to the return on holding interest-bearing assets such as bonds or savings accounts. As a result, people would prefer to hold less money and invest more in interest-bearing assets, which leads to a decrease in the quantity of money demanded.

Question 4

What is the advantage of money as a store of value? &#160;&#10;A)&#160;its purchasing power&#160;&#10;B)&#160;its liquidity&#160;&#10;C)&#160;its portability&#160;&#10;D)&#160;its uniformity

Accepted Answer

The answer of What is the advantage of money as...

Question 5

Which of the following will cause the money demand curve to shift? &#160;&#10;A)&#160;a change in interest rates&#160;&#10;B)&#160;a change in the velocity of money&#160;&#10;C)&#160;a change in the money supply&#160;&#10;D)&#160;a change in nominal GDP

Accepted Answer

A change in nominal GDP affects the demand for money because it influences the amount of transactions in the economy, thus shifting the money demand curve.

Question 6

Which way does the money demand curve slope? &#160;&#10;A)&#160;downward, because the cost of holding money decreases as the interest rate decreases&#160;&#10;B)&#160;downward, because the cost of holding money increases as the interest rate decreases&#160;&#10;C)&#160;upward, because people demand more money as GDP increases&#160;&#10;D)&#160;upward, because people demand more money as GDP decreases

Accepted Answer

The money demand curve slopes downward because as the interest rate decreases, the opportunity cost of holding money (instead of investing it) decreases, making people more willing to hold money.

Question 7

Money has several roles.Which role is the demand for money based on? &#160;&#10;A)&#160;primarily on money's role as a store of wealth&#160;&#10;B)&#160;primarily on money's role as a medium of exchange&#160;&#10;C)&#160;primarily on money's role as a standard of value&#160;&#10;D)&#160;primarily on money's role as an interest-bearing asset

Accepted Answer

The demand for money is primarily based on its role as a medium of exchange, meaning people hold money in order to facilitate transactions and purchases. While money can also function as a store of wealth and a standard of value, these roles are not the primary drivers of demand for money. Money is not typically an interest-bearing asset, as interest-bearing assets such as bonds and savings accounts are substitutes for money rather than part of its function.

Question 8

How does the demand for money vary with price level and real GDP? &#160;&#10;A)&#160;directly with the price level, and directly with the level of real GDP&#160;&#10;B)&#160;inversely with the price level, and directly with the level of real GDP&#160;&#10;C)&#160;directly with the price level, and inversely with the level of real GDP&#160;&#10;D)&#160;inversely with the price level, and directly with the level of real GDP

Accepted Answer

The demand for money varies directly with the price level because as prices increase, individuals and businesses need more money to handle transactions. Similarly, it varies directly with the level of real GDP because as the economy grows and produces more goods and services, more money is needed to facilitate this increased number of transactions.

Question 9

What is the primary reason for people to own or hold money? &#160;&#10;A)&#160;because money has a guaranteed nominal return&#160;&#10;B)&#160;because money has a guaranteed real return&#160;&#10;C)&#160;because money can be used directly to buy goods and services&#160;&#10;D)&#160;because money functions as a unit of account

Accepted Answer

The primary reason for people to own or hold money is because it can be used directly to buy goods and services. Money serves as a medium of exchange and facilitates transactions in the economy.

Option A is incorrect because money does not have a guaranteed nominal return. The return on money depends on various factors such as inflation, interest rates, and market conditions.

Option B is incorrect because money does not have a guaranteed real return. In fact, holding money results in a negative real return due to inflation.

Option D is also incorrect because while money functions as a unit of account, it is not the primary reason for people to own or hold money.

Question 10

How is the opportunity cost of holding money measured? &#160;&#10;A)&#160;by the interest rate&#160;&#10;B)&#160;by the liquidity lost due to holding money&#160;&#10;C)&#160;by the money supply curve&#160;&#10;D)&#160;by the inflation rate

Accepted Answer

The opportunity cost of holding money is measured by the interest rate. When money is held instead of being invested or spent, it loses potential interest or investment earnings. Therefore, the cost of holding money is the foregone interest that could have been earned on an investment or deposit.

Question 11

Why is demand for money relevant in a modern economy? &#160;&#10;A)&#160;because the primary payment for purchases is made by cash&#160;&#10;B)&#160;because demand deposits are included in M1+&#160;&#10;C)&#160;because credit cards are included in M1+&#160;&#10;D)&#160;because all accounts must eventually be settled with money

Accepted Answer

The answer of Why is demand for money relevant in...

Question 12

What type of relationship exists between the interest rate and the quantity of money demanded? &#160;&#10;A)&#160;a direct relationship&#160;&#10;B)&#160;an inverse relationship&#160;&#10;C)&#160;a direct relationship when the interest rate is low, and an inverse relationship when the interest rate is high&#160;&#10;D)&#160;an inverse relationship when the interest rate is low, and a direct relationship when the interest rate is high

Accepted Answer

The answer of What type of relationship exists between the...

Question 13

Which of the following is NOT assumed to be constant along the money demand curve? &#160;&#10;A)&#160;price level&#160;&#10;B)&#160;interest rate&#160;&#10;C)&#160;real GDP&#160;&#10;D)&#160;nominal GDP

Accepted Answer

The answer of Which of the following is NOT assumed...

Question 14

What does the money demand curve describe? &#160;&#10;A)&#160;how the quantity of money demanded varies with nominal GDP&#160;&#10;B)&#160;how the quantity of money demanded varies with real GDP&#160;&#10;C)&#160;how the quantity of money demanded varies with the price level&#160;&#10;D)&#160;how the quantity of money demanded varies with the interest rate

Accepted Answer

The answer of What does the money demand curve describe?...

Question 15

What should an individual compare when deciding how much money to hold? &#160;&#10;A)&#160;the disadvantage of liquidity with the advantage of earning more interest&#160;&#10;B)&#160;the advantage of liquidity with the disadvantage of losing interest&#160;&#10;C)&#160;the disadvantage of storing wealth with the advantage of having a medium of exchange&#160;&#10;D)&#160;the advantage of storing wealth with the advantage of having a medium of exchange

Accepted Answer

The answer of What should an individual compare when deciding...

Question 16

If the interest rate rises, how does this affect how much money people hold? &#160;&#10;A)&#160;People hold less money, because its opportunity cost has increased.&#160;&#10;B)&#160;People hold more money, because its opportunity cost has increased.&#160;&#10;C)&#160;People hold less money, because its opportunity cost has declined.&#160;&#10;D)&#160;People hold more money, because its opportunity cost has declined.

Accepted Answer

The answer of If the interest rate rises, how does...

Question 17

How is the money demand curve affected when price level increases? &#160;&#10;A)&#160;The money demand curve shifts to the right.&#160;&#10;B)&#160;The money demand shifts curve to the left.&#160;&#10;C)&#160;The money demand curve is NOT affected.&#160;&#10;D)&#160;The slope of the money demand curve changes.

Accepted Answer

The answer of How is the money demand curve affected...

Question 18

How will a decrease in the interest rate affect the quantity of money people want to hold? &#160;&#10;A)&#160;The quantity of money people want to hold will increase.&#160;&#10;B)&#160;The quantity of money people want to hold will decrease.&#160;&#10;C)&#160;The quantity of money people want to hold will NOT be affected.&#160;&#10;D)&#160;The quantity of money people want to hold will be constant.

Accepted Answer

The answer of How will a decrease in the interest...

Question 19

When the demand for money is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis? &#160;&#10;A)&#160;Quantity of money is on the vertical axis, and interest rate is on the horizontal axis.&#160;&#10;B)&#160;Interest rate is on the vertical axis, and quantity of money is on the horizontal axis.&#160;&#10;C)&#160;Price level is on the vertical axis, and quantity of money is on the horizontal axis.&#160;&#10;D)&#160;Quantity of money is on the vertical axis, and price level is on the horizontal axis.

Accepted Answer

The answer of When the demand for money is shown...

Question 20

What is the opportunity cost of holding money rather than some other financial asset? &#160;&#10;A)&#160;forgone interest income&#160;&#10;B)&#160;forgone utility&#160;&#10;C)&#160;forgone leisure&#160;&#10;D)&#160;forgone profit

Accepted Answer

The answer of What is the opportunity cost of holding...

Question 21

Exhibit 14-2&#10;  &#10;Refer to the graph in the exhibit.Suppose the supply of money is given by the supply curve labelled S.Given the demand for money, what is the equilibrium interest rate and what is the quantity of money? &#160;&#10;A)&#160;the equilibrium interest rate is r and the quantity of money is m&#160;&#10;B)&#160;the equilibrium interest rate is r* and the quantity of money is m*&#160;&#10;C)&#160;the equilibrium interest rate is r&#8242; and the quantity of money is m&#8242;&#160;&#10;D)&#160;the equilibrium interest rate is r and the quantity of money is m&#8242;

Accepted Answer

The answer of Exhibit 14-2&#10;  &#10;Refer to the graph...

Question 22

Exhibit 14-1&#10;  &#10;Refer to the graph in the exhibit.Suppose the price level increases.What will this move cause? &#160;&#10;A)&#160;a move from B to A&#160;&#10;B)&#160;a move from A to B&#160;&#10;C)&#160;a move from DM to DM'&#160;&#10;D)&#160;a move from DM to DM*

Accepted Answer

The answer of Exhibit 14-1&#10;  &#10;Refer to the graph...

Question 23

Which of the following, other things constant, will shift the money demand curve to the right? &#160;&#10;A)&#160;an increase in the interest rate&#160;&#10;B)&#160;a decrease in the interest rate&#160;&#10;C)&#160;an increase in real GDP&#160;&#10;D)&#160;a decrease in real GDP

Accepted Answer

The answer of Which of the following, other things constant,...

Question 24

Which of the following, other things constant, will shift the money demand curve to the left? &#160;&#10;A)&#160;an increase in the interest rate&#160;&#10;B)&#160;a decrease in the interest rate&#160;&#10;C)&#160;a decrease in real GDP&#160;&#10;D)&#160;an increase in real GDP

Accepted Answer

The answer of Which of the following, other things constant,...

Question 25

If the demand for money increases, how will the money demand curve be affected? &#160;&#10;A)&#160;There will be a movement downward along the money demand curve.&#160;&#10;B)&#160;There will be a movement upward along the money demand curve.&#160;&#10;C)&#160;There will be a rightward shift of the money demand curve.&#160;&#10;D)&#160;There will be a leftward shift of the money demand curve.

Accepted Answer

The answer of If the demand for money increases, how...

Question 26

Which of the following would cause a downward movement along the money demand curve? &#160;&#10;A)&#160;an increase in the interest rate&#160;&#10;B)&#160;a decrease in the interest rate&#160;&#10;C)&#160;a decrease in real GDP&#160;&#10;D)&#160;an increase in real GDP

Accepted Answer

The answer of Which of the following would cause a...

Question 27

Exhibit 14-2&#10;  &#10;Refer to the graph in the exhibit.Which of the following CANNOT cause the supply of money to decrease from S to S*? &#160;&#10;A)&#160;a decrease in the desired reserve ratio&#160;&#10;B)&#160;the sale of Government of Canada Treasury securities by the Bank of Canada&#160;&#10;C)&#160;a decrease in the bank rate&#160;&#10;D)&#160;an increase in excess reserves in the banking system

Accepted Answer

The answer of Exhibit 14-2&#10;  &#10;Refer to the graph...

Question 28

Which of the following is most likely to occur if there is a decrease in the supply of money? &#160;&#10;A)&#160;The demand for money will increase.&#160;&#10;B)&#160;Planned investment spending will increase.&#160;&#10;C)&#160;Interest rates will rise.&#160;&#10;D)&#160;The demand for money will decrease.

Accepted Answer

The answer of Which of the following is most likely...

Question 29

In the aggregate demand-aggregate supply model, what will be the effects of an increase in the money supply in the short run? &#160;&#10;A)&#160;an increase in the price level, and an increase in real GDP&#160;&#10;B)&#160;a decrease in the price level, and a decrease in real GDP&#160;&#10;C)&#160;an increase in real GDP, and a decrease in the price level&#160;&#10;D)&#160;a decrease in real GDP, and an increase in the price level

Accepted Answer

The answer of In the aggregate demand-aggregate supply model, what...

Question 30

What does a vertical supply curve of money indicate? &#160;&#10;A)&#160;It indicates that the lower the interest rate, the higher the opportunity cost of holding assets in the form of money.&#160;&#10;B)&#160;It indicates that the quantity of money supplied is independent of the interest rate.&#160;&#10;C)&#160;It indicates that the larger the supply of money, the higher the interest rate, all things equal.&#160;&#10;D)&#160;It indicates that the quantity of money supplied depends on the interest rate.

Accepted Answer

The answer of What does a vertical supply curve of...

Question 31

Which of the following has the most influence on the supply of money? &#160;&#10;A)&#160;interest rates&#160;&#10;B)&#160;prices&#160;&#10;C)&#160;the transactions demand for money&#160;&#10;D)&#160;the Bank of Canada

Accepted Answer

The answer of Which of the following has the most...

Question 32

Which of the following would cause a movement upward and to the left along the money demand curve? &#160;&#10;A)&#160;an increase in the interest rate&#160;&#10;B)&#160;a decrease in the interest rate&#160;&#10;C)&#160;a decrease in real GDP&#160;&#10;D)&#160;an increase in real GDP

Accepted Answer

The answer of Which of the following would cause a...

Question 33

Suppose the quantity of money supplied exceeds the quantity of money demanded.Which of the following best describes how the interest rate is affected? &#160;&#10;A)&#160;The interest rate will rise.&#160;&#10;B)&#160;The interest rate will remain the same.&#160;&#10;C)&#160;The interest rate will fall.&#160;&#10;D)&#160;The interest rate will become negative.

Accepted Answer

The answer of Suppose the quantity of money supplied exceeds...

Question 34

Which of the following describes how the opportunity cost of holding money affects people's desire to hold money? &#160;&#10;A)&#160;The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold more money.&#160;&#10;B)&#160;The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold less money.&#160;&#10;C)&#160;The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold more money.&#160;&#10;D)&#160;The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold less money.

Accepted Answer

The answer of Which of the following describes how the...

Question 35

Exhibit 14-1&#10;  &#10;Refer to the graph in the exhibit.Suppose there is an increase in level of GDP.What will this increase cause? &#160;&#10;A)&#160;a move from B to A&#160;&#10;B)&#160;a move from A to B&#160;&#10;C)&#160;a move from DM to DM'&#160;&#10;D)&#160;a move from DM to DM*

Accepted Answer

The answer of Exhibit 14-1&#10;  &#10;Refer to the graph...

Question 36

How is the equilibrium interest rate determined? &#160;&#10;A)&#160;by the price of money&#160;&#10;B)&#160;by the demand for money alone&#160;&#10;C)&#160;by the supply of money alone&#160;&#10;D)&#160;by the supply of money and by the demand for money

Accepted Answer

The answer of How is the equilibrium interest rate determined?...

Question 37

If the price level rises, all things equal, how will the demand for money be affected? &#160;&#10;A)&#160;Demand for money will increase.&#160;&#10;B)&#160;Demand for money will decrease.&#160;&#10;C)&#160;Quantity of money demanded will increase.&#160;&#10;D)&#160;Quantity of money demanded will decrease.

Accepted Answer

The answer of If the price level rises, all things...

Question 38

How will an increase in the money supply affect money markets? &#160;&#10;A)&#160;An increase in the money supply will increase the demand for money at each interest rate.&#160;&#10;B)&#160;An increase in the money supply will decrease the demand for money at each interest rate.&#160;&#10;C)&#160;An increase in the money supply will lead people to try to exchange money for interest-bearing assets.&#160;&#10;D)&#160;An increase in the money supply will lead people to try to exchange interest-bearing assets for money.

Accepted Answer

The answer of How will an increase in the money...

Question 39

Exhibit 14-1&#10;  &#10;Refer to the graph in the exhibit.Suppose the interest rate increases.What will this move cause? &#160;&#10;A)&#160;a move from B to A&#160;&#10;B)&#160;a move from A to B&#160;&#10;C)&#160;a move from DM to DM'&#160;&#10;D)&#160;a move from DM to DM*

Accepted Answer

The answer of Exhibit 14-1&#10;  &#10;Refer to the graph...

Question 40

In which of the following situations would people want to hold more money? &#160;&#10;A)&#160;when the price level increases and the interest rate increases&#160;&#10;B)&#160;when the price level decreases and the interest rate decreases&#160;&#10;C)&#160;when the price level increases and the interest rate decreases&#160;&#10;D)&#160;when the price level decreases and the interest rate increases

Accepted Answer

The answer of In which of the following situations would...

Question 41

Suppose the Bank of Canada wants to stimulate the economy.Which of the following strategies might the Bank use? &#160;&#10;A)&#160;buy bonds to lower the money supply&#160;&#10;B)&#160;sell bonds to lower the money supply&#160;&#10;C)&#160;raise the bank rate to increase the money supply&#160;&#10;D)&#160;lower the bank rate to increase the money supply

Accepted Answer

The answer of Suppose the Bank of Canada wants to...

Question 42

When the demand curve for investment is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis? &#160;&#10;A)&#160;The interest rate is on the vertical axis, and investment is on the horizontal axis.&#160;&#10;B)&#160;Investment is on the vertical axis, and the interest rate is on the horizontal axis.&#160;&#10;C)&#160;The price level is on the vertical axis, and investment is on the horizontal axis.&#160;&#10;D)&#160;Investment is on the vertical axis, and the price level is on the horizontal axis.

Accepted Answer

The answer of When the demand curve for investment is...

Question 43

As the interest rate decreases, what is the effect on the demand for investment curve? &#160;&#10;A)&#160;The demand for investment curve shifts to the right.&#160;&#10;B)&#160;The demand for investment curve shifts to the left.&#160;&#10;C)&#160;There is a downward movement along the demand for investment curve.&#160;&#10;D)&#160;There is an upward movement along the demand for investment curve.

Accepted Answer

The answer of As the interest rate decreases, what is...

Question 44

What is the effect of an expansionary monetary policy on the demand for investment curve? &#160;&#10;A)&#160;The curve will shift to the left.&#160;&#10;B)&#160;The curve will shift to the right.&#160;&#10;C)&#160;There will be a downward movement along the curve.&#160;&#10;D)&#160;There will be an upward movement along the curve.

Accepted Answer

The answer of What is the effect of an expansionary...

Question 45

If the Bank of Canada buys bonds, what are the effects on money supply, interest rates, and the quantity of money demanded? &#160;&#10;A)&#160;The money supply increases, the interest rate falls, and the quantity of money demanded increases.&#160;&#10;B)&#160;The money supply falls, the interest rate falls, and the quantity of money demanded increases.&#160;&#10;C)&#160;The money supply increases, the interest rate increases, and the quantity of money demanded increases.&#160;&#10;D)&#160;The money supply falls, the interest rate increases, and the quantity of money demanded falls.

Accepted Answer

The answer of If the Bank of Canada buys bonds,...

Question 46

What effect will an increase in the interest rate have on investment? &#160;&#10;A)&#160;An increase in the interest rate will lead to an increase in investment, because holding stocks and bonds will be more profitable.&#160;&#10;B)&#160;An increase in the interest rate will lead to an increase in investment, because people will be less willing to hold money.&#160;&#10;C)&#160;An increase in the interest rate will lead to a decrease investment only if firms have to borrow money to make investments.&#160;&#10;D)&#160;An increase in the interest rate will lead to a decrease investment regardless of whether firms have to borrow money to make an investment.

Accepted Answer

The answer of What effect will an increase in the...

Question 47

Suppose the Bank of Canada sells government securities to banks.Which of the following best describes how planned investment will be affected? &#160;&#10;A)&#160;Planned investment will increase.&#160;&#10;B)&#160;Planned investment will decrease.&#160;&#10;C)&#160;Planned investment will remain the same.&#160;&#10;D)&#160;Planned investment will first increase, and then decrease.

Accepted Answer

The answer of Suppose the Bank of Canada sells government...

Question 48

Which of the following will cause planned investment expenditures to eventually increase? &#160;&#10;A)&#160;a decrease in money supply&#160;&#10;B)&#160;an increase in demand for money&#160;&#10;C)&#160;a fall in interest rate&#160;&#10;D)&#160;managers who are pessimistic about the future

Accepted Answer

The answer of Which of the following will cause planned...

Question 49

Suppose the money supply decreases.How is GDP affected? &#160;&#10;A)&#160;GDP increases because the resulting increase in the interest rate leads to a decrease in investment.&#160;&#10;B)&#160;GDP increases because the resulting decrease in the interest rate leads to an increase in investment.&#160;&#10;C)&#160;GDP decreases because the resulting increase in the interest rate leads to a decrease in investment.&#160;&#10;D)&#160;GDP decreases because the resulting decrease in the interest rate leads to an increase in investment.

Accepted Answer

The answer of Suppose the money supply decreases.How is GDP...

Question 50

Suppose the Bank of Canada increases the money supply.How will the interest rate and the quantity of money demanded be affected? &#160;&#10;A)&#160;The interest rate will decline, and the quantity of money demanded will increase.&#160;&#10;B)&#160;The interest rate will decline, and the quantity of money demanded will decline.&#160;&#10;C)&#160;The interest rate will increase, and the quantity of money demanded will increase.&#160;&#10;D)&#160;The interest rate will increase, and the quantity of money demanded will decline.

Accepted Answer

The answer of Suppose the Bank of Canada increases the...

Question 51

In the aggregate demand-aggregate supply model, what will be the effects of a decrease in the money supply in the short run? &#160;&#10;A)&#160;an increase in the price level, and an increase in real GDP&#160;&#10;B)&#160;a decrease in the price level, and a decrease in real GDP&#160;&#10;C)&#160;an increase in real GDP, and a decrease in the price level&#160;&#10;D)&#160;a decrease in real GDP, and an increase in the price level

Accepted Answer

The answer of In the aggregate demand-aggregate supply model, what...

Question 52

Suppose money supply decreases, causing the interest rate to rise.What is the effect on GDP? &#160;&#10;A)&#160;GDP decreases by more than the increase in the interest rate because of the multiplier.&#160;&#10;B)&#160;GDP decreases by the same amount as the decrease in investment.&#160;&#10;C)&#160;GDP decreases by more than the decrease in investment because of the multiplier.&#160;&#10;D)&#160;GDP decreases by less than the decrease in investment because of the multiplier.

Accepted Answer

The answer of Suppose money supply decreases, causing the interest...

Question 53

What does an increase in the money supply lead to? &#160;&#10;A)&#160;a decline in interest rates, an increase in investment, and an increase in aggregate demand&#160;&#10;B)&#160;a decline in interest rates, a decrease in investment, and an increase in aggregate demand&#160;&#10;C)&#160;a decline in interest rates, an increase in investment, and a decline in aggregate demand&#160;&#10;D)&#160;an increase in interest rates, an increase in investment, and an increase in aggregate demand

Accepted Answer

The answer of What does an increase in the money...

Question 54

Suppose investment is NOT sensitive to changes in the interest rate.How will changes in the money supply affect aggregate demand? &#160;&#10;A)&#160;Aggregate demand will increase.&#160;&#10;B)&#160;Aggregate demand will decrease.&#160;&#10;C)&#160;Aggregate demand will remain the same.&#160;&#10;D)&#160;Aggregate demand will become negative.

Accepted Answer

The answer of Suppose investment is NOT sensitive to changes...

Question 55

Suppose the Bank of Canada sells Canadian government securities in order to drain reserves from banks.Which of the following will probably occur? &#160;&#10;A)&#160;The interest rate will fall, and the quantity of money demanded will increase.&#160;&#10;B)&#160;The interest rate will rise, and the quantity of money demanded will fall.&#160;&#10;C)&#160;The money supply will decrease, and the interest rate will fall.&#160;&#10;D)&#160;The money supply will increase, and the interest rate will fall.

Accepted Answer

The answer of Suppose the Bank of Canada sells Canadian...

Question 56

Suppose the Bank of Canada sells government securities to banks.Consequently, which of the following is likely to eventually increase? &#160;&#10;A)&#160;the price level&#160;&#10;B)&#160;planned investment expenditures&#160;&#10;C)&#160;aggregate demand&#160;&#10;D)&#160;interest rates

Accepted Answer

The answer of Suppose the Bank of Canada sells government...

Question 57

After the money supply decreases, which of the following would most likely decrease as well? &#160;&#10;A)&#160;planned investment, because interest rates increase&#160;&#10;B)&#160;planned investment, because interest rates decrease&#160;&#10;C)&#160;government spending, because interest rates increase&#160;&#10;D)&#160;government spending, because interest rates decrease

Accepted Answer

The answer of After the money supply decreases, which of...

Question 58

As the interest rate increases, what is the effect on the demand for investment curve? &#160;&#10;A)&#160;The demand for investment curve shifts to the right.&#160;&#10;B)&#160;The demand for investment curve shifts to the left.&#160;&#10;C)&#160;There is a movement downward along the demand for investment curve.&#160;&#10;D)&#160;There is a movement upward along the demand for investment curve.

Accepted Answer

The answer of As the interest rate increases, what is...

Question 59

Suppose the money supply increases.How is GDP affected? &#160;&#10;A)&#160;GDP increases because the resulting increase in the interest rate leads to a decrease in investment.&#160;&#10;B)&#160;GDP increases because the resulting decrease in the interest rate leads to an increase in investment.&#160;&#10;C)&#160;GDP decreases because the resulting increase in the interest rate leads to a decrease in investment.&#160;&#10;D)&#160;GDP decreases because the resulting decrease in the interest rate leads to an increase in investment.

Accepted Answer

The answer of Suppose the money supply increases.How is GDP...

Question 60

What happens to aggregate expenditure and demand as a result of expansionary monetary policy? &#160;&#10;A)&#160;Aggregate expenditure increases, and aggregate demand increases.&#160;&#10;B)&#160;Aggregate expenditure decreases, and aggregate demand decreases.&#160;&#10;C)&#160;Aggregate expenditure increases, and aggregate demand decreases.&#160;&#10;D)&#160;Aggregate expenditure decreases, and aggregate demand increases.

Accepted Answer

The answer of What happens to aggregate expenditure and demand...

Question 61

Suppose the short-run aggregate supply curve is positively sloped and the money supply increases.What is the effect on aggregate demand? &#160;&#10;A)&#160;Aggregate demand increases, which increases real GDP and increases the price level.&#160;&#10;B)&#160;Aggregate demand increases, which decreases real GDP and decreases the price level.&#160;&#10;C)&#160;Aggregate demand falls, which increases real GDP and increases the price level.&#160;&#10;D)&#160;Aggregate demand falls, which decreases real GDP and increases the price level.

Accepted Answer

The answer of Suppose the short-run aggregate supply curve is...

Question 62

Which of the following is an example of a contractionary monetary policy? &#160;&#10;A)&#160;Transfer payments to poor families are reduced.&#160;&#10;B)&#160;The Bank of Canada buys government securities in the open market.&#160;&#10;C)&#160;The bank rate is raised.&#160;&#10;D)&#160;Government spending is reduced.

Accepted Answer

The answer of Which of the following is an example...

Question 63

Exhibit 14-3&#10;  &#10;Refer to the graph in the exhibit.In this situation, how could the Bank of Canada return the economy to potential output? &#160;&#10;A)&#160;by increasing taxes&#160;&#10;B)&#160;by decreasing taxes&#160;&#10;C)&#160;by decreasing the money supply&#160;&#10;D)&#160;by increasing the money supply

Accepted Answer

The answer of Exhibit 14-3&#10;  &#10;Refer to the graph...

Question 64

How will a monetary injection by the Bank of Canada affect interest rates and aggregate demand? &#160;&#10;A)&#160;Interest rates will increase, and aggregate demand will decrease.&#160;&#10;B)&#160;Interest rates will increase, and aggregate demand will increase.&#160;&#10;C)&#160;Interest rates will decrease, and aggregate demand will decrease.&#160;&#10;D)&#160;Interest rates will decrease, and aggregate demand will increase.

Accepted Answer

The answer of How will a monetary injection by the...

Deck 14: Monetary Theory and Policy in an Open Economy