QUESTION The intorost-rato effect suggosts that O a docroase in the supply of mo

Question

QUESTION The intorost-rato effect suggosts that O a docroase in the supply of money will incroaso interest rates and reduce intorest-sensilive consumption and investmiont spending O an increase in the prioe level will increase the demand for money, roduce intorest ratos, and decroase consumption and investment spending O an increase in the pnice level will increaso the demand for monoy, increase interest rates, and decrease consumption and investment spending. O an increuse in the price level will decrease the demand for money, reduce interest rales, and increase consumption and investment spending QUESTION 10 Thoforogn purchases ollect suggests that an irareasintho U price level relativo to other countries wll O increase the amount of U.S. real output purchased O increase U S imports and dearease US. exports o increase both U S imports and U.S exports decrease both u s imports and us exports

Explanation / Answer

9.

The interest rate effect means that a decrease in the money supply will increase in the interest rate and with the increase in the interest rate, the investment, and consumption which is related to the interest rate decrease. This is because, with the increase in the interest rate, investment and consumption become expensive.

Hence Option first is the correct answer,

10.

The foreign purchase effect suggests that an increase in the U.S. price level relative to other countries will increase U.S. imports and decrease U.S. export.

This is because, with the increase in the price of U.S. goods and services relative to other countries, it is expensive to use U.S. made goods while foreign-made goods and services are cheaper than U.S.

hence option second is the correct answer.

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