Question 1

When the interest rate falls

Accepted Answer

A) the opportunity cost of holding money rises. 
B) people shift out of holding interest yielding assets and hold more of their wealth in the form of money. 
C) the quantity of money people will hold decreases. 
D) investment spending decreases. 
A) the opportunity cost of holding money rises. 
B) people shift out of holding interest yielding assets and hold more of their wealth in the form of money. 
C) the quantity of money people will hold decreases. 
D) investment spending decreases.

Question 2

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is

Question 3

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The South African Reserve Bank, the Bank

Question 4

An increase in the interest rate reduces the quantity of goods and services demanded, because borrowing is less expensive.

Accepted Answer

A) True 
 B)False

Question 5

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases, the int

Question 6

Use the money market to explain the interest rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need

Question 7

John Maynard Keynes's liquidity preference theory suggests that the interest rate is determined by

Accepted Answer

A) the supply of and demand for loanable funds. 
B) aggregate supply and aggregate demand. 
C) the commercial banks. 
D) the supply of and demand for money. 
A) the supply of and demand for loanable funds. 
B) aggregate supply and aggregate demand. 
C) the commercial banks. 
D) the supply of and demand for money.

Question 8

The crowding out effect is caused by

Accepted Answer

A) an increase in the money supply, which increases the demand for goods and services, and thus crowds out investment. 
B) an increase in government purchases, which reduces the demand for goods and services, and thus crowds out investment. 
C) an increase in consumer income, which increases the demand for goods and services, and thus crowds out investment. 
D) an increase in government purchases, which increases the demand for goods and services, and thus crowds out investment. 
A) an increase in the money supply, which increases the demand for goods and services, and thus crowds out investment. 
B) an increase in government purchases, which reduces the demand for goods and services, and thus crowds out investment. 
C) an increase in consumer income, which increases the demand for goods and services, and thus crowds out investment. 
D) an increase in government purchases, which increases the demand for goods and services, and thus crowds out investment.

Question 9

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might a government have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th

Question 10

Originally developed by John Maynard Keynes in the 1930s, the theory of liquidity preference holds that the interest rate adjusts to bring money supply and money demand into balance.

Accepted Answer

A) True 
 B)False

Question 11

When the government cuts personal income taxes, for instance, it increases households' take home pay.As a result

Accepted Answer

A) households will save all of this additional income, and spend little or nothing on consumer goods. 
B) households will save some of this additional income, but will also spend some of it on consumer goods. 
C) households will not save any of this additional income, but will spend all of it on the stock market. 
D) households will neither save the additional income nor spend it on consumer goods. 
A) households will save all of this additional income, and spend little or nothing on consumer goods. 
B) households will save some of this additional income, but will also spend some of it on consumer goods. 
C) households will not save any of this additional income, but will spend all of it on the stock market. 
D) households will neither save the additional income nor spend it on consumer goods.

Question 12

At higher interest rates

Accepted Answer

A) the price of goods and services are reduced. 
B) the price of borrowing and the interest rates are reduced. 
C) the cost of borrowing and the return on savings are greater. 
D) the cost of borrowing and the return on savings are reduced. 
A) the price of goods and services are reduced. 
B) the price of borrowing and the interest rates are reduced. 
C) the cost of borrowing and the return on savings are greater. 
D) the cost of borrowing and the return on savings are reduced.

Question 13

Different theories of the interest rate are useful for different purposes.When thinking about the long run determinants of interest rates, it is best to keep in mind

Accepted Answer

A) the loanable funds theory. 
B) the liquidity preference theory. 
C) the classical economic theory. 
D) the price level theory. 
A) the loanable funds theory. 
B) the liquidity preference theory. 
C) the classical economic theory. 
D) the price level theory.

Question 14

The equilibrium interest rate is the rate at which the quantity of money demanded exactly balances the quantity of money supplied.

Accepted Answer

A) True 
 B)False

Question 15

If a country's central bank increases the money supply, the aggregate demand curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 16

According to the theory of liquidity preference, if the interest rate is above the equilibrium level, the quantity of money people want to hold is less than the quantity the central bank has created, and this surplus of money puts upward pressure on the interest rate.

Accepted Answer

A) True 
 B)False

Question 17

Briefly discuss the theory of liquidity preference.

Accepted Answer

In his classic book, The General Theory

Question 18

An increase in the interest rate reduces the quantity of goods and services demanded.As a result

Accepted Answer

A) the demand for domestic goods increases. 
B) the demand for foreign goods declines. 
C) the demand for residential and business investment goods increases. 
D) the demand for residential and business investment goods declines. 
A) the demand for domestic goods increases. 
B) the demand for foreign goods declines. 
C) the demand for residential and business investment goods increases. 
D) the demand for residential and business investment goods declines.

Question 19

The opportunity cost of holding money is the

Accepted Answer

A) cost incurred to change other assets into money. 
B) time cost of accessing funds. 
C) value of the goods and services a person is able to obtain with the money. 
D) interest a person could have earned by holding other forms of wealth instead. 
A) cost incurred to change other assets into money. 
B) time cost of accessing funds. 
C) value of the goods and services a person is able to obtain with the money. 
D) interest a person could have earned by holding other forms of wealth instead.

Question 20

The equilibrium interest rate occurs in the money market where the

Accepted Answer

A) quantity of money available is zero. 
B) the maximum quantity of funds has been borrowed and loaned. 
C) the money supply is equal to the money demanded. 
D) the quantity of money demanded is zero. 
A) quantity of money available is zero. 
B) the maximum quantity of funds has been borrowed and loaned. 
C) the money supply is equal to the money demanded. 
D) the quantity of money demanded is zero.

When the interest rate falls

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

What is the difference between monetary policy and fiscal policy?

An increase in the interest rate reduces the quantity of goods and services demanded, because borrowing is less expensive.

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Use the money market to explain the interest rate effect and its relation to the slope of the aggregate demand curve.

John Maynard Keynes's liquidity preference theory suggests that the interest rate is determined by

The crowding out effect is caused by

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might a government have to do to keep output stable?

Originally developed by John Maynard Keynes in the 1930s, the theory of liquidity preference holds that the interest rate adjusts to bring money supply and money demand into balance.

When the government cuts personal income taxes, for instance, it increases households' take home pay.As a result

At higher interest rates

Different theories of the interest rate are useful for different purposes.When thinking about the long run determinants of interest rates, it is best to keep in mind

The equilibrium interest rate is the rate at which the quantity of money demanded exactly balances the quantity of money supplied.

If a country's central bank increases the money supply, the aggregate demand curve shifts to the left.

According to the theory of liquidity preference, if the interest rate is above the equilibrium level, the quantity of money people want to hold is less than the quantity the central bank has created, and this surplus of money puts upward pressure on the interest rate.

Briefly discuss the theory of liquidity preference.

An increase in the interest rate reduces the quantity of goods and services demanded.As a result

The opportunity cost of holding money is the

The equilibrium interest rate occurs in the money market where the

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

When the interest rate falls

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

What is the difference between monetary policy and fiscal policy?

An increase in the interest rate reduces the quantity of goods and services demanded, because borrowing is less expensive.

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Use the money market to explain the interest rate effect and its relation to the slope of the aggregate demand curve.

John Maynard Keynes's liquidity preference theory suggests that the interest rate is determined by

The crowding out effect is caused by

Suppose that consumers become pessimistic about the future health of the economy.What will happen to aggregate demand and to output? What might a government have to do to keep output stable?

Originally developed by John Maynard Keynes in the 1930s, the theory of liquidity preference holds that the interest rate adjusts to bring money supply and money demand into balance.

When the government cuts personal income taxes, for instance, it increases households' take home pay.As a result

At higher interest rates

Different theories of the interest rate are useful for different purposes.When thinking about the long run determinants of interest rates, it is best to keep in mind

The equilibrium interest rate is the rate at which the quantity of money demanded exactly balances the quantity of money supplied.

If a country's central bank increases the money supply, the aggregate demand curve shifts to the left.

According to the theory of liquidity preference, if the interest rate is above the equilibrium level, the quantity of money people want to hold is less than the quantity the central bank has created, and this surplus of money puts upward pressure on the interest rate.

Briefly discuss the theory of liquidity preference.

An increase in the interest rate reduces the quantity of goods and services demanded.As a result

The opportunity cost of holding money is the

The equilibrium interest rate occurs in the money market where the

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters