Question 1

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.As we move from one point to another along the money-demand curve MD₁,

Accepted Answer

As we move along the money-demand curve MD₁, the price level is held fixed at P₁, which is a characteristic of the money-demand curve.

Question 2

Figure 34-3. 
-Refer to Figure 34-3.What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

The downward-sloping line on the left-hand graph represents the demand for money. As the interest rate increases, the demand for money decreases since people are less likely to borrow or hold money at higher interest rates.

Question 3

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Accepted Answer

According to liquidity preference theory, if the money supply exceeds money demand, interest rates will decrease to encourage more borrowing and spending, which increases the quantity of money demanded.

Question 4

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

If the money-supply curve MS shifts to the left, it means that there is less money available in the economy. This shift could be caused by the Federal Reserve's monetary policy decisions. The decrease in the money supply would cause an increase in interest rates (assuming no change in the demand for money), which in turn would lead to a decrease in aggregate demand (AD) and a shift of the AD curve to the left. In the short run, the shift in MS would also create an excess demand for money at the interest rate that equilibrated the money market before the shift. Hence, all of the above statements are correct.

Question 5

Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Accepted Answer

Investment is often the most volatile component of GDP and can significantly impact output levels. A decrease in investment can lead to a reduction in aggregate demand, causing output to fall from Y1 to Y2.

Question 6

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.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? When P = P₂,

Accepted Answer

When P = P2, the price level is higher, leading to a higher interest rate (r2 > r1), which typically results in lower investment.

Question 7

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.Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

The expected rate of inflation is typically held constant when analyzing shifts along a graph in economic models, as it is an external factor not directly affected by the movement along the curve.

Question 8

Figure 34-3. 
-Refer to Figure 34-3.Which of the following sequences (numbered arrows)shows the logic of the interest-rate effect?

Accepted Answer

The answer of Figure 34-3. 
-Refer to Figure 34-3.Which of...

Question 9

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.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

The velocity of money (V) is calculated as nominal GDP (P*Y) divided by the money supply (M). Given V = 4, P = 1.2, and Y = 10,000 when r = r2, nominal GDP is 12,000. Solving for M gives M = 12,000 / 4 = $3,000.

Question 10

According to liquidity preference theory,if there were a surplus of money,then

Accepted Answer

The answer of According to liquidity preference theory,if there were...

Question 11

As the interest rate falls,

Accepted Answer

When the interest rate falls, borrowing becomes cheaper and people tend to demand more money. This increase in the quantity of money demanded will reduce any existing surplus. Therefore, the best choice is D - the quantity of money demanded rises, which would reduce a surplus.

Question 12

When households find themselves holding too much money,they respond by

Accepted Answer

When households hold too much money, they will try to invest it in interest-earning financial assets such as savings accounts, bonds, or stocks. This would increase the demand for these assets, causing their prices to rise and their yields to fall. And because interest rates are directly related to the yield of these assets, interest rates would also fall.

Question 13

The interest rate falls if

Accepted Answer

The interest rate falls if the money supply rises, as more money in the economy means easier access to credit and lending. Additionally, if the price level falls, there is less inflationary pressure, so lenders may be more willing to offer lower interest rates. Therefore, choice B is the correct answer.

Question 14

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 graphs apply to an economy such as the U.S.economy,then the slope of the AD curve is primarily attributable to the

Accepted Answer

The slope of the AD curve is primarily attributable to the interest-rate effect, which shows the inverse relationship between the price level and the interest rate. As the price level increases, people demand more money to make transactions, causing an increase in the interest rate, which leads to a decrease in investment and consumption spending, reducing aggregate demand.

Question 15

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.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

An increase in r (interest rate) from r₁ to r₂ is associated with a decrease in Y (real GDP) from Y₁ to Y₂ due to a decrease in aggregate demand (AD shifts to the left). The other statements are not necessarily true based on the information given in the graph.

Question 16

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.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

In the money market equilibrium, the quantity of money is determined by the money supply, which is assumed to be constant, so it remains the same at different income levels Y₁ and Y₂.

Question 17

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Accepted Answer

According to the liquidity preference theory, if the demand for money is higher than the supply, people will want to hold more money, which will drive up the interest rate. As the interest rate increases, the cost of borrowing money goes up, and the quantity of money demanded decreases. Therefore, choice A is the best answer.

Question 18

The interest rate would fall and the quantity of money demanded would

Accepted Answer

When there is a surplus in the money market, the interest rate falls to encourage more borrowing and spending, leading to an increase in the quantity of money demanded.

Question 19

If,at some interest rate,the quantity of money demanded is less than the quantity of money supplied,people will desire to

Accepted Answer

When the quantity of money demanded is less than the quantity supplied, people will buy interest-bearing assets, which increases their demand and causes the interest rate to decrease.

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. . -Refer to Figure 34-2.A decrease in Y from Y₁ to Y₂ is explained as follows:

Accepted Answer

An increase in the price level (P) increases the demand for money, shifting the money-demand curve to the right. This leads to a higher interest rate (r), which in turn reduces investment and overall economic output (Y), explaining the decrease in Y.

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

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the downward-sloping line on the left-hand graph?

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

Figure 34-3. -Refer to Figure 34-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

According to liquidity preference theory,if there were a surplus of money,then

As the interest rate falls,

When households find themselves holding too much money,they respond by

The interest rate falls if

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

The interest rate would fall and the quantity of money demanded would

If,at some interest rate,the quantity of money demanded is less than the quantity of money supplied,people will desire to

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

Figure 34-3. -Refer to Figure 34-3.What quantity is represented by the downward-sloping line on the left-hand graph?

According to liquidity preference theory,if the quantity of money supplied is greater than the quantity demanded,then the interest rate will

Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Figure 34-3. -Refer to Figure 34-3.Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

According to liquidity preference theory,if there were a surplus of money,then

As the interest rate falls,

When households find themselves holding too much money,they respond by

The interest rate falls if

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

The interest rate would fall and the quantity of money demanded would

If,at some interest rate,the quantity of money demanded is less than the quantity of money supplied,people will desire to

Figure 34-3. -Refer to Figure 34-3.For an economy such as the United States,what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?