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problem1: At interest rates below the equilibrium rate of interest

[A]      There is an excess demand for money and the interest rate will fall.

[B]      There is an excess demand for bonds and the interest rate will fall.

[C]      There is an excess demand for money and the interest rate will rise.

[D]      There is an excess supply of bonds and the interest rate will fall.

problem2: In Liquidity Preference, why does the demand curve for money slope downward?

[A]      Because people are more willing to hold money when interest rates are low.

[B]      Because the Fed increases the money supply when interest rates fall.

[C]      Because people want to hold more money when prices rise.

[D]      Because people carry out more monetary transactions when their incomes rise.

problem3: Increasing government deficits causes

[A]       The supply curve for bonds to shift left because corporations will borrow less due to decreased profitability when the government is in debt.

[B]      The supply curve for bonds to shift right because the United State Treasury will issue bonds to pay for the deficit.

[C]      The supply curve for bonds to shift right because government bonds pay higher interest relative to other bonds.

[D]      The supply curve for bonds to shift left because government bonds slow expected inflation.

problem4: In the Liquidity Preference framework, the price level effect differs from the expected inflation effect in that:

[A]      The price level effect has a larger impact on interest rates than the expected inflation effect.

[B]      The price level effect remains and the expected inflation effect reverses.

[C]      The price level effect always dominates the expected inflation effect.

[D]      The price level effect is temporary and the expected inflation effect is permanent.

Basic Finance, Finance

  • Category:- Basic Finance
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