According to both classics and Keynes, if, all else the same, the general price

Question

According to both classics and Keynes, if, all else the same, the general price level increases by 5%, The demand for money will increase by 5%. Both the demand for and the supply of money will increase by 5%. The demand for money will increase by less than 5%. The demand for money will increase by more than 5%.

In the real world, if the Fed keeps pumping money into the economy at a rate of 10% per year, it will mostly create inflation in the long run. It will not have any effect on real GDP. True False

The price of a bond is $10,000 and it has a face value of $12,000. What is the interest rate on this bond? 2% 12% 20% 24%

A bond promises to pay $5,350 next year. The interest rate on this bond is 7%.The price of this bond today must be: $5,000 $5,100 $5,200 $5,240

According to Keynes, an increase in money supply by the Fed results in a lower interest rate. The lower interest rate in turn stimulates consumption and investment. This increase in aggregate demand then causes the real GDP to increase. True False

Explanation / Answer

(1) Ceteris paribus, demand for money will increase by 5%.

(2) True.

(3) Interest rate - (Face value - Price) / Price x 100 = (12,000 - 10,000) / 10,000 x 100 = 20%

(4) Today's bond price = $5,350 / (1.07) = $5,000

(5) True.

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