Quiz 11

If the Fed decreases the money supply, gross domestic product:

decreases by a greater amount than the decrease in investment because of the multiplier.

The money demand curve slopes:

downward because the cost of holding money decreases as the interest rate decreases.

Other things constant, an increase in the price level will:

shift the money demand curve to the right.kk

All other things constant, when the interest rate increases:

there is a movement upward along the demand for investment curve.

Which of the following changes will cause a downward movement along the money demand curve?

​A decrease in the interest rate

Which of the following forms of money will earn at least some interest income?

​Checkable deposits

Which of these is a flow variable?

​Income

Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium?

​Interest rate increases

The ultimate effect of a reduction in the money supply is:

​a leftward shift of the aggregate demand curve.

The demand curve for investment depicts:

​an inverse relationship between interest rate and investment.

In the money market, an increase in money supply will:

​encourage people to exchange money for interest-bearing assets.

To eliminate a recessionary gap, the Fed can:

​increase the money supply as it will decrease the interest rate and increase investment.

If the Fed purchases U.S. government securities, gross domestic product:

​increases because the resulting decrease in the interest rate leads to an increase in investment.

When people exchange money for financial assets, the _____ rises.

​interest rate

For a given money demand curve, an increase in money supply:

​lowers the opportunity cost of holding money.

If the Fed adopts a contractionary monetary policy, eventually we can expect:

​planned investment expenditures to decrease.

The demand for money is a relationship between:

​the interest rate and how much money people choose to hold.

If investment is not sensitive to changes in the interest rate, then changes in the money supply:

​will have no effect on the aggregate demand of an economy.

If the Fed sells U.S. government securities to drain reserves from banks, which of the following is most likely to occur?

The interest rate will rise and the quantity of money demanded will fall.