What happens to the equilibrium quantity of money and equilibrium interest rates

Question

What happens to the equilibrium quantity of money and equilibrium interest rates if RGDP increases in the economy?

1)

2)

3)

4)

5)

A crack down on corruption in the economy of April Showers leads to a stronger, more independent judicial system. What effect do you expect this to have on economic growth in April Showers?

Question 37 options:

1)

2)

3)

4)

1)

Both equilibrium quantity of money and equilibrium interest rates rise.

2)

Equilibrium quantity of money rises and equilibrium interest rate falls.

3)

Equilibrium quantity of money falls and equilibrium interest rate rises.

4)

The quantity of money remains unchanged and equilibrium interest rates rise.

5)

The quantity of money remains unchanged and equilibrium interest rates fall.

A crack down on corruption in the economy of April Showers leads to a stronger, more independent judicial system. What effect do you expect this to have on economic growth in April Showers?

Question 37 options:

1)

This will not impact the economy of April Showers and therefore cannot impact economic growth.

2)

Economic growth will increase as productivity increases due to the change.

3)

Economic growth will decrease as productivity decreases due to the change.

4)

The effect of such an event is unclear.

Explanation / Answer

4) If RGDP increases,

option (1) Both equilibrium quantity of money and interest rate rise

Increase in RGDP means that the demand for money will increase because people will need more money to make payment for transactions.This will put an upward pressure in the interest rates of the money because money demand exceeds money supply,therefore interest rate will rise too.

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