Economics-Ch15

Which of the following does NOT correctly state the factors that can shift the Money Demand curve to the right?

An increase in interest rates will shift the Money Supply Curve to the right.

Which of the following correctly states the relationship between a change in the money supply and a change in prevailing interest rates?

An increase in the money supply causes a decrease in prevailing market interest rates, which results in growth in GDP.

Why does the quantity demanded of money fall when interest rates rise?

Because the opportunity cost of holding money rises when interest rates rise. As interest rates rise, the opportunity to earn higher interest payments increases.

Which of the following actions by the FED will expand GDP?

Buying large volumes of government bonds from banks and other financial institutions.

If the Stock Market is booming and interest rates on government bonds is skyrocketing, what is likely to happen to the Quantity Demanded of Money?

Decrease

What change in the interest rates charged by commercial banks will increase GDP?

Decrease

What is the relationship between the money supply and commercial banking interest rates?

The Fed lowering the discount rate or lowering the reserve requirement or buying bonds will increase the money supply which leads to lower commercial banking interest rates.

Which of the following correctly states the process by which a change in the money supply impacts GDP.

When the money supply increases, the interest rate falls and investment and consumer spending increases, which leads to an increase in GDP.

Which of the following is correct about the supply of money?

Which of the following is correct about the supply of money?

What is the relationship between a constant velocity and Nominal GDP?

If velocity is constant, the Quantity Theory of Money states that a 3% increase in the Money Supply will increase nominal GDP by 3%.

Which of the following correctly defines and states the Quantity Theory of Money?

If velocity is constant, the Quantity Theory of Money states that a 5% increase in the Money Supply will increase nominal GDP by 5%.

Which of the following correctly states the long run impact of a change in the money supply?

In the long run, an increase in the money supply results in a higher price level.

This theory shows a direct relationship between a change in the money supply and a change in Nominal GDP.

Quantity Theory of Money. If velocity is constant, a 10% increase in the Money Supply leads to a 10% increase in Nominal GDP (P x Y)

Which of the following provides the correct Equation of Exchange?

The Equation of Exchange is M x V= P x Y, where M is the money supply, V is the velocity of money, P is the price level and Y is real output.

In the Equation of Exchange, what factors illustrate Nominal GDP?

The Equation of Exchange is M x V= P x Y, where M is the money supply, V is the velocity of money, P is the price level and Y is real output. Therefore, P x Y illustrate Nominal GDP.

What is the Velocity of Money?

The Equation of Exchange is M x V= P x Y, where M is the money supply, V is the velocity of money, P is the price level and Y is real output. The velocity of money is how quickly a given dollar bill is reused to make purchases by different people in the economy.

Which action by the Fed is likely to decrease GDP?

The Fed fears that inflation will explode soon, so it sells massive amounts of bonds. But inflation does not increase and the excess reserves removed from the banking system lead to a higher federal funds rate, higher interest rates, lower borrowing, less investment and a contraction in GDP.

Which of the following correctly states how the prime interest rate is set?

The Prime Interest Rate is the base rate upon which all other interest rates are set. It is set by the equilibrium point where the demand curve for money crosses the supply curve for money.

Which of the following correctly defines and describes the demand for money?

The demand for money is the relationship between the interest rate and the amount of money people want to hold. As the interest rate rises, the quantity of money demanded falls.

Which of the following correctly states the opportunity cost of holding money?

The opportunity cost of holding money is the interest payments given up from not having that money in an interest paying instrument.