29. In the aggregate-demand/aggregate-supply model, what adjustments cause the e
ID: 1125245 • Letter: 2
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29. In the aggregate-demand/aggregate-supply model, what adjustments cause the economy to return to its long-run capacity when output is temporarily lower than the economy's long-run potential output a. Lower wage rates and resource prices increase short-run aggregate supply b. Lower interest rates increase aggregate demand and thereby stimulate output. c. Higher wage rates and resource prices reduce short-run aggregate supply d. A decrease in the price level reduces aggregate demand. -30. Currently in the U.S., money is backed by a. gold in Ft. Knox. b. silver in government vaults. c. Federal Reserve Notes in banks. d. willingness and faith to accept it as payment e. All of the above are true. 31. Although paper can be used as money, it suffers one weakness compared to other possible commodities: a. it is not portable. b. it cannot be easily divided. c. it cannot be stored. d. it cannot be used as "unit of account." e. it has no value in itself. Which of the following is not a component of the M1 money supply? a. 32. demand deposits b. large-denomination (more than $100) bills interest-earning checking deposits c. d. outstanding balances on credit cards The distinction between M1 and M2 is based on a. liquidity - the ease with which an asset can be converted into cash. b. storability- the ease with which an asset can be stored. c. divisibility- the ease with which an asset can be used to make specific payments. d. portability-the ease with which an asset can be moved to make a payment on the spot. e. all of the above. 33· An eccentric millionaire dies and leaves the S1 million cash stuffed in his mattress to the Humane Society, which deposits the fortune in Bank-A-Mythica. If the required reserve ratio is 25 percent, will happen to the nation's money supply? Assume that no banks keep reserves above the minimur required (i.e., no excess reserve) and no individuals or firms hold cash (i.e, no currency drain). a·The money supply will expand S4 million. b. The money supply will expand $3 million c. The money supply will expand S1 million. d. The money supply will expand three quarters of a million. 34.Explanation / Answer
Answer 29:- a) lower wage rates and resource prices increases short run aggregate supply.
When out is lower than long run equilibrium in short run, lower wages and resource prices reduces the cost of production and increases profit. This increases supply and supply shifts back to long run equilibrium.
Answer 30:- d) willingness and faith to accept it as a payment
Currently US currency is a Fiat money so is the currency of most of the economies. It does not have any intrinsic values. It is acceptable due to the willingness and faith to accept it as a payment.
Answer 31:- e) it has no vaue in itself.
Paper currency is fiat currency, it has no vaue of itself. It is accepted only on the basis of market demand and supply. Thus in case of no demand its vaue will become null.
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