1-) When the demand for money is greater than the supply of money: A. people off
ID: 1098742 • Letter: 1
Question
1-) When the demand for money is greater than the supply of money:
A. people offering to sell nonmonetary financial assets must increase the interest rate these assets pay in order to sell them.
B. interest rates will fall.
C. the opportunity cost of holding money will fall.
D. more people will hold money.
2-) If an economy is in long-run equilibrium at its potential output level, this also means:
A. the money market is in equilibrium.
B. money demand is greater than money supply.
C. money supply is greater than money demand.
D. there is excess money in the money market.
3-) The Federal Open Market Committee does NOT control the:
A. discount rate.
B. reserve ratio.
C. prime rate.
D. federal funds rate.
4-) If the Federal Open Market Committee engages in an open market purchase, it will:
A. shift the money supply curve to the right.
B. shift the money supply curve to the left.
C. shift the money demand curve to the left.
D. shift the money demand curve to the right.
5-) (Figure: Monetary Policy I) Refer to the information in the figure Monetary Policy I. If the money market is initially at E2 and the central bank chooses to sell bonds:
A. AD2 will shift to the right, creating an inflationary gap.
B. AD2 may shift to AD1, creating a recessionary gap.
C. SRAS1 will shift immediately to the left, closing an existing inflationary gap.
D. SRAS2 will shift immediately to the right, increasing an existing inflationary gap.
6-) (Figure: Monetary Policy and the AD
Explanation / Answer
1.ans:
D. more people will hold money.
2.ans:
C. money supply is greater than money demand.
3.ans:
C. prime rate.
4.ans:
D. shift money demand curve to the right
5.ans:
B. AD2 may shift to AD1, creating a recessionary gap.
6.ans:
B. from AD to AD'.
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