The higher the interest rate, the greater the preference for liquidity. True Fal
ID: 1219281 • Letter: T
Question
The higher the interest rate, the greater the preference for liquidity. True False The demand for money is a relationship between: the interest rate and how much money people choose to hold. the price level and the actual output produced in an economy. the price level and the amount of cyclical unemployment. the interest rate and how much money people earn during a certain time period. In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n): decrease in real GDP and an increase in the price level, decrease in both the price level and real GDP. increase in real GDP and a decrease in the price level, increase in both the price level and real GDP. When the Fed decreases the money supply: aggregate supply increases, which leads to movement along the aggregate demand curve, aggregate demand decreases, which leads to movement along the short-run aggregate supply curve, aggregate demand and aggregate supply both increase. aggregate demand increases, which leads to movement along the short-run aggregate supply curve. Which of the following reasons explains why many countries with relatively small populations import automobiles from Japan, U.S., and Germany rather than produce them domestically? Import quotas Differences in tastes Economies of scale Differences in resource endowments Tariffs and quotas: are imposed when there are differences in the opportunity cost of production across countries, reduce both consumer surplus and producer surplus in the exporting country, reduce consumer surplus and increase producer surplus in the importing country, increase consumer surplus and reduce producer surplus in the importing country. Some countries export products at prices below the cost of production or the price charged in the domestic market. This practice is called: import substitution, cream skimming, monopoly pricing, dumping.Explanation / Answer
A. The higher the rate of interest, the greater the preference for liquidity. - this statement is is False, because as the rate of interest increases the amount of saving increases and a the amount of holding money in hand i.e liquidity decreases.
B. The demand for money is a relationship between the interest rate and how much money people choose to hold. As interest rate increases the amount of money which is hold as a cash in hand decreases and vice versa.
C. In the Aggregate Demand - Aggregate Supply model in the short run, an increase in money supply will lead to an increase in both the price level and real GDP. This is because an increases in the money supply in an economy is mirrored by an equal increase in nominal output, or Gross Domestic Product (GDP). In addition, the increase in the money supply will lead to an increase in consumer spending. This increase will shift the aggregate demand curve to the right.
D. When the Fed decreases the money supply aggregate demand decreases, which leads to a movement along the short run aggregate supply curve. This is because when the money supply decreased, it is mirrored by an equal decrease in the nominal output, otherwise known as Gross Domestic Product (GDP). In addition, the decrease in the money supply will lead to a decrease in consumer spending. This decrease will shift the aggregate demand curve to the left. This reduction in money supply reduces price levels and real output, as there is less capital available in the economic system.
E. For this question the answer in Economics of Scale. This is because if they started to produce auto mobiles there savings will reduce as production increases.
F. Tariffs and quotas are imposed when there are differences in the opportunity cost of production across countries to restrict trade.
G. Some countries export products at prices below the cost of production or the price charged in the domestic market.This practice is called Dumping. The purpose for this is to increase market share in the foreign market.
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