Which one of the following statements is false? O A Liquidity preference model suggests that higher GDP growth leads to higher nominal interest rates. O B. The price-level effect of the growth of money supply leads to lower interest rates O C. The liquidity effect of the growth of money supply leads to lower interest rates. Liquidity preference model suggests that when the bond markets is in excess supply, the money market is in excess demand

Which one of the following statements is false? O A Liquidity preference model suggests that higher GDP growth leads to higher nominal interest rates. O B. The price-level effect of the growth of money supply leads to lower interest rates O C. The liquidity effect of the growth of money supply leads to lower interest rates. Liquidity preference model suggests that when the bond markets is in excess supply, the money market is in excess demand

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 6PA

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Which one of the following statements is false? O A. Liquidity preference model suggests that when the bond markets is in excess supply, the money market is in excess demand. O B. The liquidity effect of the growth of money supply leads to lower interest rates. OC. The price-level effect of the growth of money supply leads to lower interest rates. O D. Liquidity preference model suggests that higher GDP growth leads to higher nominal interest rates.
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Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…
Monetary policy becomes more effective as Select one: O a. the income tax increases O b. the interest sensitivity of investment increases O c. the marginal propensity to save increases O d. the interest sensitivity of money demand increases
With a constant rate of inflation and an increasing money supply, interest rates can remain stable because... a. The rising price level is increasing the demand for money, offsetting the impact of the rising money supply. O b. The declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise. Oc. The rising price level is decreasing the demand for money which is pushing interest rates up. O'd. The declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise. O e. The money transmission mechanism does not apply in a situation of sustained inflation.
r the next chair of the Federal Reserve Board has a reputation for advocating an even slower rate of money growth than the current chair, what will happen to interent raten? OA. Slower money growth will lead to a liquidity effect, which will raise interest ratos. Moreover, the lower income, price level, and inflation wil reinforce the increane in interest rates OB. Slower money growth will lead to a liquidity effect, which will raise interest rates; however, the lower income, price level, and inflation wil tend to lower interest rates. OC. Slower money growth will lead to a liquidity effect, which will lower interest rates; however, the lower income, price level, and inflation wil tend to raise interest rates. O D. Slower money growth will lead to a liquidity effect, which will lower interest rates. Moreover, the lower income, price level, and inflation will reintoron he decrease in interest rates.
How can a central bank decrease the money supply? O a. By selling securities O b. All of the answers are correct O c. By decreasing the target overnight interest rate O d. By engaging in "quantitative easing"
When the economy is in a liquidity trap, expansionary monetary policy is ineffective with respect to income because Select one: a. the public is willing to hold any amount of money being offered at the current rate of interest. O b. the public already holds all the money they want. O c. investment is insensitive to changes in the rate of interest. O d. the real demand for money is insensitive to changes in the rate of interest.
Which of the following would lead to a decrease in the equilibrium interest rate? O a. Decrease the money demand O b. Decrease the money supply Ос. Increase in money demand O d. Increase the money supply O e. Directly lower the interest rate and change neither the money demand nor the money supply
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