Question 1

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?
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.

Accepted Answer

When the interest rate increases, the opportunity cost of holding money increases because the return on money (in terms of interest earned) is higher compared to holding money without any interest. As a result, people tend to hold less money and demand for money decreases. Therefore, the quantity of money demanded decreases.

Question 2

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?
A)People will sell interest-bearing assets, causing the interest rate to decrease.
B)People will sell interest-bearing assets, causing the interest rate to increase.
C)People will buy interest-bearing assets, causing the interest rate to decrease.
D)People will buy interest-bearing assets, causing the interest rate to increase.

Accepted Answer

The answer of If at some interest rate the quantity...

Question 3

Figure 15-1
 
-Refer to the Figure 15-1.Which of the following will happen if the current interest rate is 2 percent?
A)There will be excess money supply.
B)People will sell more bonds, which drives interest rates up.
C)As the money market moves to equilibrium, people will buy more goods.
D)People will sell more bonds, which drives the interest rates down.

Accepted Answer

The answer of Figure 15-1
 
-Refer to the Figure 15-1.Which...

Question 4

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?
A)People will sell interest-bearing assets, causing the interest rate to decrease.
B)People will sell interest-bearing assets, causing the interest rate to increase.
C)People will buy interest-bearing assets, causing the interest rate to decrease.
D)People will buy interest-bearing assets, causing the interest rate to increase.

Accepted Answer

If the quantity of money demanded is greater than the quantity of money supplied, people will want to buy more assets than there are willing sellers, causing the price of these assets (interest rates) to increase. In order to reduce the demand for money, people will sell interest-bearing assets, which will drive up the interest rate.

Question 5

In which of the following situations do people want to hold less money?
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

Accepted Answer

People want to hold less money when the price level decreases because they need less cash for transactions, and when the interest rate increases because the opportunity cost of holding money is higher, making saving or investing more attractive.

Question 6

In which of the following situations do people want to hold more money?
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

Accepted Answer

People want to hold more money when the price level increases because they need more money for transactions, and when the interest rate decreases because the opportunity cost of holding money is lower.

Question 7

According to the theory of liquidity preference,which of the following variables adjusts to balance the supply and demand for money?
A)interest rate
B)money supply
C)quantity of output
D)price level

Accepted Answer

According to the theory of liquidity preference, the interest rate adjusts to balance the supply and demand for money. When there is an excess demand for money (i.e. people want to hold more money than is available in the economy), the interest rate will rise in order to entice people to lend out their money, increasing the supply of money. Similarly, when there is an excess supply of money (i.e. people want to hold less money than is available in the economy), the interest rate will fall in order to encourage people to hold onto their money, decreasing the supply of money. Therefore, the correct answer is A) interest rate.

Question 8

According to liquidity-preference theory,why is the money-demand curve downward sloping?
A)because interest rates rise as the Bank of Canada reduces the quantity of money demanded
B)because interest rates fall as the Bank of Canada reduces the supply of money
C)because people will want to hold less money as the cost of doing so falls
D)because people will want to hold more money as the cost of doing so falls

Accepted Answer

According to liquidity-preference theory, the money-demand curve is downward sloping because people will want to hold more money as the cost of doing so falls. As interest rates decrease, the opportunity cost of holding money instead of investing it in other assets also decreases, leading to an increased demand for money.

Question 9

According to liquidity-preference theory,what is the opportunity cost of holding money?
A)the interest rate on bonds
B)the inflation rate
C)the cost of converting bonds to a medium of exchange
D)the difference between the inflation rate and the interest rate on bonds

Accepted Answer

According to liquidity-preference theory, the opportunity cost of holding money is the interest rate that could have been earned by investing the money in other assets, such as bonds. Therefore, the answer is A, the interest rate on bonds.

Question 10

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

Accepted Answer

The opportunity cost of holding money is the interest foregone by not investing it. When the interest rate increases, the opportunity cost of holding money also increases because people can earn higher returns by investing it. As a result, people desire to hold less money and invest more to earn a better return.

Question 11

If there is excess money demand,what will people do and what happens to the interest rate?
A)People will deposit more into interest-bearing accounts, and the interest rate will fall.
B)People will deposit more into interest-bearing accounts, and the interest rate will rise.
C)People will withdraw money from interest-bearing accounts, and the interest rate will fall.
D)People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Accepted Answer

When there is excess money demand, people will want to withdraw money from interest-bearing accounts to satisfy their demand for cash. As a result, the demand for money will increase, which will push up the interest rate. Therefore, people will withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 12

In recent years,the Bank of Canada has conducted policy by setting a target for which of the following?
A)bank reserves
B)the monetary growth rate
C)the exchange rate
D)the bank rate

Accepted Answer

The Bank of Canada has conducted policy by setting a target for the bank rate, which is the interest rate at which the central bank lends money to commercial banks. By adjusting this rate, the Bank of Canada is able to influence the supply of money and credit in the economy, which in turn can impact inflation, employment, and other macroeconomic variables.

Question 13

Figure 15-1
 
-Refer to the Figure 15-1.At which of the following interest rates is there an excess money demand?
A)2 percent
B)3 percent
C)4 percent
D)5 percent

Accepted Answer

At 2 percent interest rate, the quantity of money demanded is greater than the quantity of money supplied, resulting in an excess money demand.

Question 14

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

Accepted Answer

According to liquidity-preference theory, if the quantity of money supplied exceeds the quantity demanded, the interest rate will decrease to encourage borrowing and spending, which in turn increases the quantity of money demanded.

Question 15

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?
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.

Accepted Answer

According to liquidity-preference theory, if the quantity of money demanded is greater than the quantity supplied, individuals will bid up the interest rate to entice suppliers to lend out more money. This increase in interest rates will deter some individuals from demanding as much money, leading to a decrease in the quantity of money demanded.

Question 16

If there is excess money supply,what will people do and what happens to the interest rate?
A)People will deposit more into interest-bearing accounts, and the interest rate will fall.
B)People will deposit more into interest-bearing accounts, and the interest rate will rise.
C)People will withdraw money from interest-bearing accounts, and the interest rate will fall.
D)People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Accepted Answer

When there is excess money supply, people tend to deposit more into interest-bearing accounts as they have more cash than needed for their immediate consumption. This increase in deposits leads banks to have more funds to lend, which typically results in a decrease in interest rates as banks compete to lend out their excess reserves.

Question 17

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

Accepted Answer

When the interest rate decreases, the opportunity cost of holding money decreases because the forgone interest earnings is less. As a result, people are willing to hold more money, causing an increase in the quantity of money demanded.

Question 18

Why do people primarily own or hold money?
A)because it has a guaranteed nominal return
B)because it has a guaranteed real return
C)because it can be used directly to buy goods and services
D)because it functions as a unit of account

Accepted Answer

People primarily own or hold money because it can be used directly to buy goods and services. Money is a medium of exchange and is used to facilitate transactions in the economy.

Question 19

Figure 15-1
 
-Refer to the Figure 15-1.At an interest rate of 4 percent,how much is the excess money demand or supply?
A) There is an excess money demand equal to the distance between a and b.
B) There is an excess money demand equal to the distance between b and c.
C) There is an excess money supply equal to the distance between b and a.
D) There is an excess money supply equal to the distance between c and b.

Accepted Answer

At an interest rate of 4 percent, there is an excess money supply equal to the distance between point b and point a. This is because the quantity of money supplied (MS) exceeds the quantity of money demanded (MD) at this interest rate.

Question 20

Figure 15-1
 
-Refer to the Figure 15-1.Which of the following is most likely to happen if the interest rate is equal to 4?
A)There is excess demand for money, and the interest rate will fall.
B)There is excess supply of money, and the interest rate will rise.
C)There is excess demand for money, and the interest rate will rise.
D)There is an excess supply of money, and the interest rate will fall.

Accepted Answer

At an interest rate of 4, the quantity of money demanded is less than the quantity supplied, indicating an excess supply of money. This will put downward pressure on the interest rate, which will fall in order to encourage borrowing and lending until the excess supply is depleted.

Quiz 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded,what will people desire to do and what happens to the interest rate?

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

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?

In which of the following situations do people want to hold less money?

In which of the following situations do people want to hold more money?

According to the theory of liquidity preference,which of the following variables adjusts to balance the supply and demand for money?

According to liquidity-preference theory,why is the money-demand curve downward sloping?

According to liquidity-preference theory,what is the opportunity cost of holding money?

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

If there is excess money demand,what will people do and what happens to the interest rate?

In recent years,the Bank of Canada has conducted policy by setting a target for which of the following?

Figure 15-1 -Refer to the Figure 15-1.At which of the following interest rates is there an excess money demand?

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

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?

If there is excess money supply,what will people do and what happens to the interest rate?

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

Why do people primarily own or hold money?

Figure 15-1 -Refer to the Figure 15-1.At an interest rate of 4 percent,how much is the excess money demand or supply?

Figure 15-1 -Refer to the Figure 15-1.Which of the following is most likely to happen if the interest rate is equal to 4?