weeek 14

Which of the following is correct?

A higher price level shifts money demand rightward, When money demand shifts rightward, the interest rate rises & A higher interest rate reduces the quantity of goods and services demanded.

Other things the same, which of the following happens if the price level rises?

Money demand shifts rightward, Initially there is an excess demand for money in the money market & The interest rate rises.

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

buy bonds to lower the interest rate

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

classical in nature, and that her view is more valid for the long run than for the short run.

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

classical theory, but not liquidity preference theory.

When the interest rate decreases, the opportunity cost of holding money

decreases, so the quantity of money demanded increases

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

increase and the quantity of money demanded will decrease

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

increase, which decreases the quantity of goods and services demanded.

People might withdraw money from interest-bearing accounts,

making the interest rate rise, if there is a shortage in the money market.

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

sell bonds to decrease the money supply.